Is Varanium Cloud a Good stock to Buy?
Varanium Cloud Ltd, a small and medium enterprise, grabbed attention with its initial public offering (IPO) in September 2022, raising around ₹40 crore to fund three edge data centers and three digital learning centers.
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However, what seemed like a promising venture quickly unraveled into a cautionary tale of financial deception and mismanagement. Let me give you a small journey of deception and fraud by the company :
Smoke and Mirrors: The Data Center Mirage
Post-IPO, Varanium claimed to have established data centers in Goa, Kudal, and Mumbai. Yet, upon investigation, the National Stock Exchange (NSE) found no data centers at the specified locations. Electricity consumption records further revealed that the so-called operational data centers consumed a mere 10 units in December 2023, significantly less than an average household.
Fabricated Financials
Despite reporting significant operational revenue post-IPO, SEBI's investigation found that these sales were purely fictional. Varanium's main customer, Amtelfone Incorporated, turned out to be a phantom entity. No substantial cash flow from operations supported the reported profits, indicating that the company's financial statements were grossly inflated and misleading.
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Misappropriation of Funds
Instead of utilizing the IPO funds for their intended purpose, Varanium diverted approximately ₹24 crore to unrelated entities. BM Traders, a fruit and vegetable wholesale business with no staff and a residential address, received over ₹18 crore. Additionally, funds were funneled to Turmeric Lifestyle Pvt Ltd, a villa rental business owned by one of the promoters.
Dubious Shareholding Patterns
Initially, the promoters held about 63% of the company. By the December quarter, their stake plummeted to around 36%, causing alarm among investors. When questioned, Varanium cited an "inadvertent error" in classification but failed to provide the revised shareholding pattern, even after multiple inquiries from NSE.
Pump-and-Dump Scheme
Promoter Harshwardhan Sabale executed a classic pump-and-dump scheme. By making fake positive announcements, such as partnerships with The Pokemon Company and plans for an OTT platform, Varanium artificially inflated its share price. The share price soared from an IPO-adjusted price of ₹30.5 to a peak of ₹393 before crashing, leaving retail investors in the lurch.
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Promoter's Troubled History
Mr. Sabale's past is riddled with legal troubles. From a ₹14 crore fraud in 2009 to a fictitious ₹5,500 crore investment in Reliance Industries Ltd in 2019, and most recently, a ₹15 crore cheating case involving Rolta India Ltd, his track record raises serious red flags.
SEBI's Verdict
SEBI's investigation concluded that Varanium Cloud Ltd operated solely on paper, with no actual business activities. The regulator imposed restrictions on the company and Mr. Sabale, barring their involvement in the securities market. The National Financial Reporting Authority was also directed to scrutinize the actions of Varanium's auditor, AK Kocchar & Associates.
Conclusion: Buyer Beware
Varanium Cloud Ltd is a textbook example of why investors must exercise due diligence. From non-existent data centers and fabricated financials to misappropriation of funds and dubious shareholding patterns, the company exemplifies a scam. The promoter's checkered past and the ongoing SEBI investigation further underscore the risks.
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In summary, Varanium Cloud Ltd is not a good buy. Investors should steer clear of such fraudulent enterprises to safeguard their hard-earned money.
Read the full SEBI order: https://www.sebi.gov.in/enforcement/orders/may-2024/interim-order-in-the-matter-of-varanium-cloud-limited_83309.html