InvestorQ : With SEBI ordering forensic audit into the accounts of Sun Pharma, should I be worried as an investor in the stock?
Debbie Mascarenhas made post

With SEBI ordering forensic audit into the accounts of Sun Pharma, should I be worried as an investor in the stock?

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Crowny Pinto answered.
3 years ago
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A forensic audit is normally audit when they want to find out if the company had indulged in any kind of round tripping of funds or has taken money out of the company. It is a type of investigative audit. The forensic audit called for by SEBI is based on the complaint made by a whistleblower who had alleged about conflict of interest in the operations of the company. Broadly, the whistleblower had made allegations on two fronts.

Firstly, there was an allegation that the marketing of drugs by Sun Pharma was being done by a group company which was registered private company with connected persons having a majority stake in the company. To overcome the corporate governance issue the company has absorbed the marketing function entirely into its parent company operation.

Secondly, the allegation pertained to the group NBFC which were promoted by the brother-in-law of Mr. Shanghvi and that had again resulted in conflict of interest allegations since it had resulted in financial transactions on an intergroup basis. Post these allegations, the company has got out of the NBFC business altogether.

The forensic audit pertains to the period between fiscal year 2016 and fiscal year 2018. Since Sun Pharma has already taken remedial steps in both the cases, the problem may not be really intense for the investors to warrant too much of a worry. Additionally, the stock has already corrected by nearly 70% from its peak levels in 2015 so most of the immediate and medium term risks are fully factored in. If you are invested in Sun Pharma, there is not really much for you to worry about. You can hold on to the stock.

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