The 'Smoking Gun' That Shows Amira Nature Foods Is Worth $0

Shares of Amira Nature Foods Ltd ANFI were trading higher by more than 2 percent early Wednesday afternoon, despite a new research report by Prescience Point that claimed the company is "fabricating the financials it files" with the SEC.

Within the report, Prescience Point conducted interviews with former insiders who painted an alarming picture. One of the most notable former insiders is Rahul Nayar, a former UBS banker who worked on Amira's IPO and later joined the firm as its director of global communications and strategy.

What's most alarming about Nayar is that he is the brother-in-law of Amira's CEO Karan Chanana.

Prescience Point noted: "Not only does he not refute that Amira is inflating its financials, he seems to hint that it is and tells us where to look for proof."

Related Link: Amira Nature Foods Ltd Announces Full-Year Fiscal 2015

• 1) whether they are independent
• 2) how the contracts were won
• 3) the sizes of their businesses relative to the contract size.

Nayar also emphasized the following:

• 1) Amira's level of disclosure is "inadequate."
• 2) Analysts are "missing the boat" and not posing the right questions.
• 3) The U.S. investment community "doesn't care to verify company claims" as long as the company reports strong revenue growth.

Another ex-insider Prescience Point reached out to was an unnamed former independent board member who served on the company's compensation, corporate governance, nominating and audit committees until he resigned from the company in 2013.

The former insider was asked to comment on the relatively high CFO turnover rate, in particular when the company saw four different CFOs over a three-year span: "While I was there, I'm not sure that's still the case, the turnover at the company was relatively high and that always creates questions in my mind... if you're seeing red flags that would definitely be something that would worry me personally...if you have concern over the financials, I would definitely be very cautionary how I go forward."

A former (unnamed) Chief Financial Officer was asked to discuss potential manipulation of financial statements. The ex-CFO was quoted as saying: "To manipulate the routing of funds...So it is their method of moving funds around...If you look at it purely from a transfer pricing perspective, that is where they can mess around. That's how they work around. How you build arm's length transactions is very important definition there, and so how you build the transfer pricing mechanism. So [they can play with] that particular stuff, an auditor can do a [check showing that something] is not right, but if he's not sure, then he will say, 'Okay fine. I'm not so sure about that.' So that's how it'll work out. It's an area of gray, not white or black so that is how they will try to structure those transactions."

Prescience Point's Summary: Stock Fundamentally Worth $0.00 Per Share

Prescience Point came to the conclusion that Amira is "vastly overstating its reported revenue," in addition to not generating sufficient cash flow to fund its operations and service its debts. As such, the company has no option but to resort to additional financing to meet its existing debt service obligations. In addition, the company will soon exhaust its liquidity if cash burn continues at the current rate.

"Because we believe Amira is hoodwinking investors and has no intention of providing a meaningful return to public foreign shareholders, we think Amira's stock is fundamentally worth $0.00/share and should be de-listed from the New York Stock Exchange," the report concluded.