Over the past few days, power equipment maker CG Power and Industrial Solutions has caught the fancy of investors and experts alike after the firm reported financial misstatements, alleged siphoning of funds and unauthorized transactions, which could make for a good case study for any forensic audit student.

CG Power's management held their first investor meeting after it disclosed on August 20 about the findings of an internal probe which unearthed several unauthorized transactions, understatement of its liabilities and advances made to related and unrelated parties, among other financial irregularities.

The management assured investors that a further forensic audit would be undertaken in consultation with legal advisors, Vaish Associates, and the internal Operating Committee. However, no indication was provided on the timeline of such enquiry.

Also Read: CG Power: Curious case of misstatements and financial fraud

The management also put to rest some reports regarding probe against the company by the Ministry of Corporate Affairs and the Securities Exchange Board of India and clarified that no proceeding has been initiated against the company by these authorities.

Despite the liquidity crunch, the management is hopeful of a revival over the next 12- 18 months. While the management acknowledged the current working capital crunch due to pressure from vendors, they are optimistic that the situation would improve over the coming months.

In order to bridge the funding gap, the company is looking to raise fresh equity worth Rs 500 crore in addition to Rs 600 crore that the company is hoping to general through sales of Kanjurmarg land and CG House.

Also Read: CG Power revival plan on track; board assures investors, lenders of management change

The management was confident that once working capital issues ease, EBITDA margins would trend back to the historical average over the next 12 months on the back of the 10 percent domestic revenue growth that the company is targeting.

On international operations, the management said that while Indonesian and Swedish operations continue to be profitable, the final decision on the loss marking Hungary and Belgium businesses would be taken over the next couple of quarters.

Investors also quizzed the company on the corporate governance issues and the current board and shareholding structure. The company maintains that they have received no official request from investors to remove Gautam Thapar as the chairman of CG Power and currently he and KN Neelkant continue to hold board positions.

The management, however, did not comment on whether they would be removed from the board due to corporate governance issues. Furthermore, no clarity was given on the future role of KKR and Sunil Bharti Mittal in the company.

While the management tried to clear the air around a lot of these issues, but the stakeholders are still nervous given the corporate governance issues.

First Published:Aug 28, 2019 12:22 PM IST