Shares of CG Power and Industrial Solutions Ltd’s have tumbled 36% in the last two trading sessions on news of serious accounting lapses at the company. The stock has been languishing at the lower circuit for the past two days because no one knows the extent of the trouble at the company.

It’s important to note that the market had got wind of troubles brewing at the company much earlier. CG Power’s market capitalization has declined from around₹6,000 crore in January 2018 to ₹1,156 crore earlier this week, even before it reported the unauthorized transactions by certain employees on Tuesday.

The fall in the stock’s value in the past two trading sessions, however, pales in comparison. CG Power’s market cap has declined by about ₹400 crore since it reported the unauthorized transactions.

Lights out

CG Power’s market capitalisation had fallen from around Rs6000 crore in January 2018 to Rs1156 crore even before the company reported unauthorised transactions by employees.

But for the stock, trouble began when the company, in its earlier consolidated avatar as Crompton Greaves Ltd (CGL), aggressively acquired companies overseas. Between 2006 and 2010, it acquired several firms in the UK, France, Ireland, Belgium and Hungary in its bid to become an $8 billion company, in revenue terms, by 2015.

The vision was to compete with multinationals in the power solutions space, but those same grand plans have run the company aground.

What went wrong? The overseas businesses, which accounted for half of CGL’s revenue was an overhang as global slowdown began hurting profitability. The industrial segment, which was a drain on cash flows, was earlier funded by its consumer-based business. The consumer electricals business was its cash cow.

But analysts had sensed problems when the de-merger of its cash-rich consumer business was not a plain vanilla deal. Along with the de-merger, the promoter group also cashed out. It sold its entire stake in the consumer business to a consortium of private equity investors for about ₹2,000 crore.

Soon after, with no cash flow, the industrial entity CG Power struggled with its debt mounting. Consolidated debt of CG Power was about ₹2,000 crore as of 30 September.

Simultaneously, promoters’ pledged shares increased. Finally, as of 30 June, the Avantha group has zero stake in CG Power from 34.3% a year ago. Stranded bankers and lenders such as private equity firm KKR, whose loans were converted to equity, are now left holding what looks like a dud asset. A slight twist in the tale is the acquisition of an over 8% stake by Bharti (SBM) Holdings Pvt. Ltd, a firm owned by Sunil Bharti Mittal, this year.

For now, revival of the industrials business is a distant cry, even with a management or a board change. After all, the industrial business in Europe and in India, where CG Power has the highest stakes, is facing a cyclical downturn.