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HP joins Siemens,Suzuki,Vedanta in Scamming Indian Minority Shareholders

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Indian Stock Markets are full of stock market manipulators and operators trying perennially to loot the small investor with the regulator SEBI mostly turning a blind eye.Pump and Dump IPO issues,circular stock rigging in small caps,corporate governance issues in even large companies are quite endemic.Investing in the Indian markets is a very hazardous activity for the small investor.Its not only the Indian companies but also large reputed MNCs who also keep pulling fast ones on the minority shareholders.The Cairn-Vedanta deal is a recent example where the promoters are rewarded at a higher premium in takeovers through legal shenanigans by large corporate groups.

Suzuki whose Indian subsidiary Maruti is the main cashcow for this Tier 2 Japanese automaker is one of the biggest culprits.The company charges usurious royalty rates from its majority owned Indian subsidiary thus killing most of its profit potential.I am pretty sure that Maruti could do a much better job at R&D than paying huge amounts every quarter to its parents.However this practise continues on without any punishment by the stock market or government regulators.Siemens recently bought a stake in one of its subsidiaries at an absurdly low valuation again fleecing the Indian minority shareholders.Now HP has joined this infamous list as its subsidiary Mphasis reported very low margins.The reason being the low prices being charged by Mphasis to its parent HP.This resulted in the stock crashing down by more than 25% as analysts raised corporate governance issues.Despite denails by Mphasis managment nobody is convinced as the company refuses to part with the pricing information of these related party contracts.

Governance at MphasiS slips as HP’s interest holds sway

Is Hewlett Packard (HP) slowly smothering MphasiS to buy out minority shareholders in the same way as it did in Digital Globalsoft in 2004?

The answer seems to be in the affirmative, going by analysts.
In their report brought out on Thursday, CLSA analysts Nimish Joshi, Bhavtosh Vajpayee and Arati Mishra have raised concerns over the collapse of corporate governance at the Mumbai-based outsourcing firm to serve HP’s interest.

“MphasiS’ financial performance is now peripheral to the central issue of the shocking collapse in its governance standards,” they wrote in a note to investors.

“HP has been here before with a similar experience faced by investors in Digital Globalsoft. Post this result, the harm done to not only MphasiS’ but also HP’s reputation is likely to be long lasting. Questions will linger on perhaps for a long time.”

Apparently, in 2003, Digital Globalsoft — then a HP- owned listed entity on the Indian stock exchange — went through a similar phase of massive price cuts from HP before HP ended up buying out the minority shareholders in 2004.

“We see a similar pattern repeating with MphasiS. However, in our view, the latest episode is one too many for HP’s credibility. We also remain intrigued by MphasiS’ decision to announce a stock plan for employees ahead of such poor results. Clearly, HP has steamrolled its own employees’ interests as well and that will likely be a big hurdle in attracting talent in the future,” said CLSA analysts.

What is making the CLSA analysts raise the alarm is the massive price cuts from HP — 68% of total revenues — which has pushed down MphasiS’ dollar revenues 8.5% sequentially to $271 million in the quarter ended January 31.


Abhishek Shah

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