The shares of agrochemical company UPL (formerly United Phosphorus) fell on Friday after the auditor of a key subsidiary resigned and the company tried to give a clarification on the development.
The communication on Thursday said that the auditor of the UPL Corporation (UPL's Mauritius subsidiary), KPMG Mauritius, had resigned with effect from October 8, 2020.
The company clarified on Friday that a KPMG sub-licensee was continuing to audit the parent company. It also included a note from the Mauritius auditor which said that it was resigning with immediate effect on October 8, but that there was nothing about the resignation about which was necessary to tell the board of directors.
“There are no circumstances connected with our resignation which we consider should be brought to the notice of the members,” it said.
An auditor checks that the financial statements of a company are in order. Resignations have previously resulted in significant declines when investors saw it as a negative signal on the company's financials.
“It is strange that an auditor of a large material subsidiary resigns mid-term without ascribing any reasons. The company should communicate the reasons that lead to this resignation to the shareholders,” said Shriram Subramanian, founder and managing director of InGovern Research Services, which advises on corporate governance issues.
An auditor exiting suddenly is not a healthy sign for companies in general, said Amit Tandon, founder and managing director of advisory firm Institutional Investor Advisory Services India.
“Any mid-term (resignations) of auditors need to be looked at closely,” he said.
The company, which manufactures chemicals used in agriculture, including insecticides and herbicides had reported over Rs 35,700 crore in revenues from operations for FY20. Shareholders in the parent company had an attributable net profit of Rs 1,776 crore. Its Mauritius subsidiary had been a vehicle for a major acquisition in the previous financial year.
The latest annual report noted that it had completed the integration of the $4.2 billion Arysta LifeScience acquisition ahead of schedule. This was expected to help optimise manufacturing and help with research and development, among other gains, according to the company's statements on the buy.
“Following the acquisition of Arysta LifeScience, we became one of the top 5 agricultural solutions companies worldwide. As a new company, we now offer an integrated portfolio of both patented and post-patent agricultural solutions for various arable and specialty crops, including biological, crop protection, seed treatment and post-harvest solutions spanning the entire crop value chain,” the FY20 annual report said.
Emails sent to the company and the auditor in Mauritius went unanswered.
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