July 14, 2023 (MLN): In the world of sweet delights, Bunny’s Limited (PSX: BNL) was once the rising star, but now it finds itself caught in a twisted web of financial ruin and corporate mishap. Behind the frontage of delectable treats, a dark tale reveals as Bunny’s Limited’s reverse merger with Moonlight Company led to shattered dreams.

Unsuccessful Profitability Targets:

Promises were made, and dreams were sold. Bunny’s Limited’s investor presentation painted a picture of untold riches, projecting a bottom-line profit (PAT) of Rs248 million. However, reality had other plans, bringing a crushing blow with a muted post-tax profit of a mere Rs139mn—a staggering 44% deviation from the assured fortune.

Similarly, other financial matrices have also remained sub-par where gross margins and net margins for FY22 clocked in at around 22.2% and 3.1%, as compared to the company’s projection of around 28.6% and 6.8%, respectively.

In 9MFY23, the company’s PAT has remained subdued to clock at Rs98mn, depicting a net margin of around 2.3%, as compared to a projection of approximately 6%.

After just a few months of trading since its inception, the stock’s performance has been lackluster when compared to the main index.

Industry Peers Outperforming:

In the world of dough and confectionery, competition is aggressive, and Bunny’s Limited found itself lagging far behind its rivals. During a similar period, peer companies in the food and FMCG sector have recorded impressive topline and bottom-line growth in FY22.

The gross profit of BNL witnessed a modest growth of around 5% YoY in FY22, whereas, the gross profit of NESTLE, SHEZAN, FCEPL, FFL, and PREMA recorded an increase of around 27%, 27%, 18%, -25% and 77%, respectively.

Cowed Performance in 9MFY23:

The nightmare continued as Bunny’s Limited stumbled through the first nine months of FY23, only to deliver another upsetting blow. A subdued PAT of Rs98mn reflected a net margin of a paltry 2.3%—far from the promised 6%.

Corporate Governance Red Flags:

On the governance front, there are certain muddles have been unearthed. The company’s website, a digital facade of promises, displayed profiles of directors long gone—Zahid Zuberi, Moazzam, Iram Khan, and Umair Jahangir. As the truth unraveled, the impression of transparency shattered, leaving investors to question every word spoken by those in power.

Appointment of Director without any Notice:

During the research, it has come to light that the company appointed Mr. Shahzi Khan as an independent director without providing any notification to the local bourse. According to regulations/Company Act, listed companies are obligated to inform the local bourse regarding any such changes in directorship.

In December 2022 Quarterly report, the board of directors includes Omar Shafiq Chaudhry, Mahnoor Chaudhry, Maya Omar, Rafi Uz Zaman Awan, and Moazzam Iftikhar Ahmed.

While in the latest report replaced the name of Moazzam Iftikhar Ahmed with Shahzi Khan.

The Independence of Independent Directors:

In a game of corporate plotting, independence is a precious commodity, but Bunny’s Limited’s independent directors may twirl on a tightrope between loyalty and self-interest.

In addition, various other concerning aspects surrounding BNL and its reverse merger with Moonlight Company, along with associated issues in corporate governance.

The reverse merger of Bunny’s Limited into Moonlight Company raises questions about adherence to the rules set by the Pakistan Stock Exchange (PSX).

 Several examples of reverse mergers have resulted in negative consequences for shareholders, highlighting the need for a thorough review of the PSX’s policy regarding reverse mergers.

It has come to light that Iftikhar Moazzam, one of the independent directors, was elected with the proxy of shareholders. This revelation raised concerns about the company’s observance to corporate governance practices and the independence of its board members.

Furthermore, it has been revealed that Ms. Shazi was appointed as an independent director at a later stage, indicating that the company had only one independent director prior to her appointment. It questions company’s compliance with regulatory requirements related to independent board representation.

No Corporate Briefing since the start of Trading:

Despite our diligent efforts to stay informed, it seems that no trace of any corporate briefing conducted has made its way onto the PSX website September 2020, the beginning of the scrip trading.

 Surprisingly, there is no notification to be found regarding this matter. It’s truly perplexing how such crucial information could elude our diligent search.

Additionally, there have been no analyst briefings or investor presentations since August 24, 2020, which raises concerns about transparency and communication with stakeholders.

Market talks unveiled that rumors are swirling about certain institutions and shareholders having their generous grip on Bunny Limited’s shares.

Insider Trading:

Furthermore, there have been 33 instances of insider trading disclosures in BNL from August 26, 2021, to date.

Notably, the trade volume by insiders exceeds the market volume during that period, without any specific reasons provided. The following is a breakdown of insider trading activity:

The difference in buying price and selling price is significant between the period of 2021-2022.

SECP’s Role:

In order to sustain transparency in the corporate world, where the hard-earned money of thousands of small investors and the general public is at stake, the Securities and Exchange Commission of Pakistan (SECP) should address such mismanagements.

Initially, companies make impressive promises to investors, including huge returns, business expansion, and increasing valuations. However, once listed or operational, these companies fail to accomplish their false pledges, leaving investors shattered and devoid of hope.

Consequently, the number of investors in the Pakistani stock market remains considerably low, as many are cautious to risk their funds.

To instill confidence in the local bourse, the SECP should establish a dedicated department responsible for monitoring companies’ performance, inspecting their promises, and assessing their actual results. This would ensure proper checks and balances, leading to improved investor confidence.

Auditors’ Negligence:

It has come to light that Bunny Limited, like some other companies, has experienced financial mismanagement. After thorough investigation, it appears that the responsible parties for overlooking such mishandlings are auditors categorized as “B category” Aslam Malik & Co Chartered Accountants.

These auditors have been accused of neglecting their duty to identify and address these issues. Bunny Limited is now facing rumors circulating in the market regarding the presence of a significant number of its shares in the accounts of two brokerage houses and one Modarabah company.

This has led to suspicions that the manager may have engaged in financing activities, resulting in substantial insider trading.

When approached for comment on these rumors, Mr. Shafiq, a representative of Bunny Limited, declined to provide any specific information and stated that he couldn’t comment on mere rumors.

To avoid situations like these, companies should prioritize the quality of their auditors. It is alarming that companies with notable red flags in terms of corporate governance tend to employ auditors who fail to fulfill their responsibilities effectively.

To rectify this issue, companies must ensure that auditors of high quality and integrity are engaged, and will diligently serve their purpose of safeguarding financial integrity and identifying any irregularities or mismanagement.

Addressing such concerns and taking proactive measures to enhance corporate governance and financial oversight is crucial for restoring trust and confidence in the company and its operations.

Unfulfilled promises of expansion plans:

There have been substantial apprehensions regarding the unfulfilled promises made by the company regarding its second expansion. Despite raising funds for this expansion in 2020, the company has failed to provide any clear information or updates about its plans.

This lack of transparency has left shareholders and investors in the dark about the progress and timeline of the assured expansion, which was anticipated to be completed by 2024.

Also, the company’s first expansion, which was supposed to enhance its operations, was accomplished late in 2022 without proper notice or communication to shareholders.

Company’s response to aforementioned concerns and findings:

In response to the concerns and findings brought forward by Mettis Link News, the company’s senior management was approached for understanding the reasons behind such concerns. Mr. Muhammad Shafique, the CFO of the responded few of them.

When questioned about the unachieved financial goals, Mr. Shafiq attributed them to the challenging economic circumstances prevailing in the country, coupled with the continuing commodity Supercycle in the international market. These external factors, he explained, posed substantial hurdles in meeting the company’s targets.

Regarding corporate briefing sessions, Mr. Shafiq highlighted that the company rarely conducts meetings where major shareholders actively participate and contribute their valuable insights to progress the company’s performance. In an effort to further enhance communication and transparency, he assured that the company has plans to start regular corporate briefing sessions in the near future.

Acknowledging the issue of a director being appointed without notifying the PSX, Mr. Shafiq candidly acknowledged that it was an unfortunate administrative error. He emphasized that the incident happened due to an unintended error made by a staff member who failed to send the mandatory notice to the PSX.

In spite of the efforts made to address the concerns, there were certain questions that remained unanswered, as they were deemed unofficial. “Shareholders may be better positioned to provide a more comprehensive response to those particular inquiries,” Mr. Shafiq said.

On the other hand, shareholders are eagerly looking to the management for these responses.

Copyright Mettis Link News

Posted on: 2023-07-14T10:51:39+05:00