Milestone Furniture: A company famous for absence of CA!

Can you imagine a firm having no CA, no promoter holdings, and no income? The management has also gone without a trace!

The firm in question is Milestone Furniture, which manufactures furniture and designs offices. It was founded in 2014 and went public in 2018 on the SME platform with an issue price of INR45 and a size of INR14.84 crore. Its financial antics have left individual investors who had invested in the company befuddled, and Twitter is buzzing over it.

In addition, some high-profile investors acquired its stock and have recently discovered that Milestone Furniture is transforming into a zombie corporation, with promoters just disappearing. This is especially common with tiny firms that launch IPOs with little to no company history. They usually appear during bull market stages or at the height of market excitement.

The Chairman of Milestone Furniture said in a BSE filing on June 7 that the existing chartered accountant, CA Bhupendra Gandhi, has vanished and has not responded to phone calls, so the financial statements have been pending due to a lack of financial data as well as the absence of persons in charge of the data. According to the DRHP, Gandhi has been involved with Milestone Furniture since it became public.

The business’s notification to the exchange also stated that it is seeking a qualified applicant for the positions of managing director and company secretary, both of which are critical to the company’s organic growth. The firm now lacks a CEO after former CEO Ganesh Kumar Sadanand Patlikadan quit on May 25. Milestone Furniture recently announced that the company had relocated its registered office from Wada, India, to Mumbai, Maharashtra.

Expert opinion on the case of Milestone Furniture.

People have a tendency to forget their history. They have just witnessed the example of prominent people in the aviation industry who have forgotten the two generations of private airlines that have gone bankrupt in India. The same is true for banks and financial institutions. There are similar experiences with ed-tech firms in the past, says Devina Mehra, chairman and managing director of First Global, adding that they were not tiny enterprises, but many little businesses have come and gone.

He does not want to comment on a specific firm, but investing in micro-caps is dangerous. It is essentially buying blind, especially for a small investor, adding that Gujarat used to be a centre of these disappearing enterprises. And try to recall when it was attempted to locate some of them because when one looked at the data at times, the P/Es or even dividend yields seemed very, very excellent, added Mehra.

By January 25, the stock was trading at INR10.06, more than double its closing price of INR4.22 at the end of 2022. Despite the subsequent turmoil, this company’s stock is still up 31% year to date. A cursory look at the stock price performance reveals that the stock has frequently touched upper and lower circuits since its IPO, indicating frequent sharp movements. Between July 2022 and April 2023, there was a wave of bulk trades in this only BSE-listed firm. Among the significant names are Safir Anand, who purchased 57,000 shares of the business on January 19 for INR8.15, and Ashish Chugh, who purchased 1,38,000 shares on January 4 for INR4.47.

On January 4, Divya Digambar Songhare, the daughter of Digamber Songhare (the then-managing director of Milestone Furniture), sold 6,12,000 shares. According to the company’s DRHP, Patlikadan and Digambar Songhare were promoters.

The existence of ‘The Lottery Effect’.

Milestone Furniture is an excellent example of a failed firm. It first appeared on the SME platform in 2018. While promoters have entirely gone, regular investors, who are famous for falling knives, have stepped into what they felt was an opportunity. This was undoubtedly an example of ‘The Lottery Effect’ in action. 

The Lottery Effect is a behavioural finance concept that outlines how investors are drawn to investments with the potential for significant returns, even if the likelihood of those gains is extremely low. This is analogous to how individuals are drawn to playing the lottery, even though the odds of winning are low. The lottery effect also comes into play when ordinary investors make investing decisions since the chance of a significant gain may be more emotionally enticing than the idea of a small but consistent return. 

Milestone Furniture’s market capitalisation is currently INR5.4 crore. In early 2023, penny-stock fans were tagging each other on social media about the stock, but no one knew anything about its fundamentals. According to the exchange, the only thing fuelling the stock’s interest was optimism. The firm did not earn any income in FY22, and records for FY23 have yet to be provided.

Conclusion.

From zombie start-ups to start-ups with no CAs, from hyped valuations to financial irregularities, there are iconic narratives of Indian start-ups. Let’s see what new concept enters the domain of the Indian start-up ecosystem!

Proofread & Published By Naveenika Chauhan