Amira Nature Foods Ltd (NYSE:ANFI) shares lost around 25% of their value following the publication of a short report by Prescient Point Research Group. A link to Prescient 40-page report can be found at the end of this article. McKinley Capital Management, Harvest Capital Strategies, and Raging Capital Management were among the few hedge funds with positions in Amira at the end of the third quarter. We don’t agree or disagree with the contents of the report; we will leave it up to the readers to decide themselves. Here are some highlights:
“Amira intends to transfer $30m of $225m of newly raised of debt capital in what amounts to a sham real estate transaction. The purchase price appears to be multiples of both his purchase price and current market rates, amounting to an egregious transfer of shareholder capital into his pockets. We should mention, as discussed extensively in this report, our investigation has revealed that the Indian rice industry is rampant with fraud.”
“…To be clear, we believe Amira Nature Foods if fabricating the financials it files with the Securities and Exchange Commission. We hope that investors who own ANFI equity and those considering buying debt or equity at what appears to be a fundamentally low valuation familiarize themselves with the risks we addressed. There are many more we do not. We also hope that the SEC and Deloitte take necessary precautions in protecting investors.
We have sourced official Indian government Basmati export data that proves ANFI has overstated its international Basmati revenue. We estimate that ANFI inflated this metric by ~145% in FY’13 and ~117% in FY’14, implying that in FY’14, ~19% of ANFI consolidated sales were fabricated. We have also collected evidence indicating Amira is lying about its India Basmati revenue, which it tells US investors is derived wholly from the sale of branded product. Amira claimed ~$224m in Indian Basmati revenue in FY’14; we estimate it actually generated ~$38m, implying that another 34% of consolidated sales are fabricated. Over 50% of ANFI’s consolidated revenue is suspect; that number could be larger, as we are giving the company full credit for its reported revenue from non-Basmati rice and other commodity products.
We have identified scores of undisclosed related party entities that are listed to be operating from within Amira’s headquarters, use Amira email addresses, and are directed by ANFI CEO Karan Chanana or his wife; at least a couple of these entities are in the business of distributing rice, including Basmati rice, and other commodities.