How did Varanium Cloud, a listed company, cheat its investors?

ByNinad Mondkar

Varanium Cloud (IT services company) was listed on NSE’s SME platform in September 2022. Its shares quickly rose from ₹ 122 to ₹ 1,602 in just four months, making it the talk of the town.

Why does it matter?

  • Misutilisation of IPO proceeds: The company’s promise to use the IPO proceeds worth ₹ 40-odd Crores was questioned by NSE. Even its dealings with Avance (a BSE-listed company) are under the radar of SEBI for gross misreporting of financial data.
  • Fund Diversion: The company made large remittances (46% of IPO proceeds) to BM Traders. SEBI found that BM Traders is involved in the wholesale fruit and vegetables business. Moreover, the visit to its office revealed that it was a residential address and had no business activity.
  • Misreporting of financial statements: Varanium’s standalone revenue from operations in 2022-23 was ₹ 383.36 Crore, 985% higher than its previous year! Its primary revenue came from a company named Amtelfone. A public domain search showed a website that had basic information but no details of Amtelfone’s management or individuals associated with it.
  • Stake divestment by promoter: SEBI’s investigation revealed that Harshavardhan Sabale (promoter) was prima facie engaged in fraudulent practices by presenting misleading information about the company’s growth and prospects.

Zoom In

  • SEBI’s investigation revealed that Varanium had misutilised the IPO proceeds and had manipulated its financial statements by recording fictitious sales and purchases.
  • Considering its findings, SEBI banned Varanium & Harshavardhan Sabale (promoter) from the capital markets in May 2024.

What next?

  • Many retail investors get swayed away by social media and their brokers, investing money in shares to make a quick buck.
  • Such behaviour may derail one’s long-term journey.
  • It’s advisable to seek professional guidance before making any investment decisions.

Disclaimer. Mutual Fund investments are subject to market risks, read all scheme related documents carefully