After stock market crash, auditor questions CCAvenue merger: Infibeam’s future in deep waters?

Indian e-commerce companies have been notorious for burning a lot of capital without caring about unit economics. In fact, very few firms master the art of making money off the Internet. Infibeam had turned out to be an exception with a debut on the stock exchange at the beginning of FY17.

It had surprised analysts and observers with Initial Public Offering (IPO) and its performance in the aftermath. From Rs 337 crore revenue and Rs 8.8 crore profit at the time of listing, Infibeam went on to posting Rs 839 crore revenue with Rs 88 crore profit in FY18.

Unfortunately, the stellar performance of the company has been catastrophic ever since the dissemination of a Whatsapp message alleging lack of corporate governance. The single message eroded about Rs 9,200 crore market cap in a single day.

It was the largest stock falls after Satyam Computers Services in January 2009.

That is not all. This crack in Infibeam is widening at a fast pace. Within a week of calling off proposed acquisition of Unicommerce from Snapdeal, its auditor sought a detailed report of a probe into its merger with payment gateway - Avenues India Pvt Ltd (formerly CCAvenue).

SRBC & Co LLP, the audit arm of EY India, had asked the management to conduct an independent investigation into two matters - merger and acquisition and other financial statement related matters materialised in the first quarter of FY19.

Such revelations were informed to stock exchange during earnings announcement for the quarter ended June 2018. While the company said that an independent chartered accountant investigated its merger with Avenues Ltd. and didn't find any irregularity, according to a Bloomberg Quint report - auditor isn’t satisfied with company explanation.

SRBC & Co asked Infibeam to submit the detailed report of the independent investigation. It also outlined that the impact of the merger on Infibeam’s FY18 reports and first-quarter earnings can’t be known until the investigation is concluded.

Avenues Pvt Ltd. merged with Infibeam for about Rs 2,000 crore but the fair value of former was valued only Rs 134 crore. Remaining Rs 1,846 crore worth stock was paid for intangible assets including software, trademark, goodwill, and customer relationship.

Over 93 per cent of total acquisition amount was for the intangible asset. Such a high proportion of intangibles in acquisition could be the potential reason for auditor’s concern. Entrackr has reached out to Infibeam’s spokesperson for understanding the reasons behind queries sent by the auditor.

However, the company is yet to respond to our detailed questionnaire.

Back to back controversies over corporate governance coupled with the movement of Kothari and mutual exit from Unicommerce deal seem to be hinting towards unstable future for the first public e-commerce company.

While some questions will probably be answered when Infibeam will announce its Q3 2019 financial results, the recovery of the company from these blows is likely to be an acid test.