Kalpataru Power Transmission (KPTL) said on Thursday it has dropped its plan to construct a new office in Santacruz, Mumbai, after analysts flagged concerns about related party transactions and capital misallocation.
KPTL said it has decided to keep the proposal of construction of a corporate office in abeyance. “Since the disclosure was made on December 08, 2020, the company has received certain observations and feedback from investors and on a reconsideration, the management has further reviewed the matter and decided to keep the proposal of construction of corporate office in abeyance,” the company said in a statement. In its December 8 disclosure, KPTL had said the plans for the new office involved purchasing land for Rs 207 crore.
“The abeyance proposal will again be presented to the board for necessary advice and directions,” it said.
A capex plan, which now stands shelved, involved construction of a new office space, near the company’s office in Santacruz. The plan would have cost Rs 377 crore combined, inclusive of land purchase, construction and related costs.
Multiple analysts have questioned the rationale for this capex. Analysts with IIFL in a report released on Wednesday said, “This development (the 8th December capex announcement) raises red flags on capital allocation and related party transactions, and will continue to overcast the valuations.”
KPTL on Thursday also informed exchanges, the land for the new office was to be purchased was from a related party of the company. Seller related details for the land parcel was not disclosed in the Tuesday announcement.
Analysts with Edelweiss in a 9th December dated report wrote, “The announcement’s timing is surprising as it comes at a juncture (COVID-19) when most corporates are avoiding discretionary capex.” Both the IIFL and Edelweiss reports were published before KPTL announced its decision to put the capex proposal in abeyance.
In a letter to BSE on Thursday, KPTL added, “Given the size of the transaction, it required no shareholder approval. The company has ensured due process and fairness through a valuation (with two international valuation experts), audit committee review and board review before approving the same.”