AFCOM HOLDINGS LIMITED

BSE: 544224 | CIN: L51201TN2013PLC089652

Deep Dive Financial Analysis

Financial Reporting Quality | Margin Sustainability | 777F Feasibility | Peer Benchmarking

March 2026

1. Financial Reporting Quality & Accounting Assessment

1.1 Audit Quality

Afcom Holdings is audited by M/s PPN and Company, Chartered Accountants, a small regional audit firm based in Chennai (Firm Reg No: 013623S). The FY25 annual audit resulted in an unqualified (clean) opinion, confirming that the financial statements present a true and fair view. The auditor confirmed no material weaknesses in internal financial controls. However, the use of a small audit firm for a company now valued at several hundred crores raises questions about audit depth. A Big 4 or mid-tier national firm would add more credibility as the company scales.

1.2 Accounting Framework & Key Policy Choices

The company reports under Indian GAAP (IGAAP), not Ind AS, taking advantage of the SME platform exemption. This is a material limitation for investors because Ind AS requires more rigorous disclosures around lease accounting (IFRS 16 equivalent), fair value measurements, and segment reporting. Under Ind AS, all their dry lease obligations would appear on the balance sheet as right-of-use assets and lease liabilities, significantly changing leverage metrics.

1.3 Key Accounting Red Flags & Observations

1.4 Reporting Quality Score

2. Margin Analysis & Sustainability

2.1 Historical Margin Trajectory

*9M FY26 EBITDA = PBT + Depreciation + Amortisation + Finance Costs. Annualised FY26 revenue run-rate ~Rs. 53,000 lakhs.

2.2 Quarterly Margin Progression (FY26)

2.3 Are These Margins Sustainable?

Arguments FOR Sustainability:

Yield vs Cost Spread: Revenue yield of 2.56 USD/kg vs cost of 1.34 USD/kg (Q3 FY26) provides a healthy 48% gross spread. This spread has been improving Q-on-Q.

ATF Tax Exemption: The Designated Indian Carrier status (Feb 2026) provides 29% VAT exemption on aviation fuel, saving an estimated 5-7% of operating costs. This is a structural, recurring benefit.

Niche Positioning: As India's only standalone cargo airline, Afcom faces limited direct competition in its India-ASEAN corridor, enabling pricing power.

Geopolitical Tailwinds: Middle East conflict has reduced regional carrier capacity, creating a surge in charter demand at premium pricing.

Arguments AGAINST Sustainability:

Cyclical Industry: Global cargo airline EBITDA margins historically average just 2-3%. The current 20-30% margins are an anomaly driven by post-COVID e-commerce boom and Middle East disruptions. Normalisation is inevitable.

Charter-Heavy Revenue Mix: 242 pure charters in Q3 FY26 suggests significant reliance on ad-hoc demand. Charter revenue is inherently volatile and will normalise when geopolitical situations improve.

Rising Costs with Scale: Employee costs have nearly doubled YoY (Rs. 1,997 lakhs for 9M FY26 vs Rs. 1,111 lakhs for full FY25). Other expenses have surged to Rs. 2,200 lakhs (9M) vs Rs. 890 lakhs (full FY25).

Accounting Flattery: If dry lease deferred expenditure were expensed more conservatively, true margins would be 3-5% lower than reported.

2.4 Cash Flow Analysis

The deteriorating OCF/PAT ratio is concerning. While the company shows strong reported profits, actual cash conversion has fallen sharply. The bulk of investing outflows (Rs. 10,022 lakhs in FY25) went into non-current assets (dry lease deposits, deferred expenditure), not tangible capacity. By Q3 FY26, the company held Rs. 14,015 lakhs in cash, but Rs. 12,962 lakhs of this came from preference shares and warrant subscriptions, not operations.

3. Feasibility of Acquiring Two 777F Freighters

3.1 The 777F: Cost Economics

The Boeing 777 Freighter is a 100-tonne payload wide-body aircraft, representing a quantum leap from Afcom's current fleet of Boeing 737-800 BCF narrow-bodies (22 tonnes each).

For two 777F aircraft, the annual operating cost would be approximately Rs. 670-870 Cr ($80-104 million).

3.2 Can Afcom Self-Fund This?

Current Financial Position (as at Dec 31, 2025):

The Verdict: Afcom cannot fund two 777F freighters without substantial external capital.

3.3 What Would Be Required?

To credibly operate two 777Fs, Afcom would need to raise Rs. 500-800 Cr of additional capital through a combination of equity (QIP/rights issue/preferential allotment), long-term debt facilities (secured against aircraft), and potentially strategic partnerships with global lessors or cargo operators. The MRO subsidiary incorporation (approved Feb 2026) and growing interline partnerships suggest the company is building the operational ecosystem to eventually justify wide-body operations, but this is a 3-5 year journey, not an immediate possibility.

4. Global Peer Benchmarking

4.1 Global Cargo Airline Margins & Valuations

*Afcom annualised FY26 run-rate. EV/EBITDA estimated based on current market cap.

4.2 Key Observations

5. Conclusion & Risk Assessment

5.1 Summary Assessment

5.2 Key Risks to Monitor

Disclaimer: This analysis is for informational purposes only and does not constitute investment advice. Financial data has been extracted from publicly filed documents with BSE. All projections and estimates are based on available data and may not reflect actual outcomes. Investors should conduct their own due diligence.

AFCOM Holdings - Conservative P&L Restatement (Revised)

Source Data: Exact Figures from Annual Report Notes

Note 12 - Other Non-Current Assets Breakdown

Note 19 / Note 24 - Deferred Revenue Expenditure Policy (verbatim from Annual Report):

"Prior to commencing operations under the dry lease model, the Company incurred various expenses including aircraft lease rentals, pilot and crew hiring/training costs, maintenance expenditures and other operational setup costs. Operations under the dry lease model commenced only upon receipt of the Air Operator Permit (AOP) from the aviation authorities on 11th December, 2024. Accordingly, expenses incurred in relation to the dry lease business prior to the receipt of AOP have been classified and disclosed as Deferred Revenue Expenditure and are being amortized over the lease period of aircrafts."

Dry Lease Amortisation: Quarter-by-Quarter (from filings)

Key observation: Amortisation is flat at ~Rs. 267 lakhs/quarter from Q4 FY25 onwards. At this rate, the Rs. 6,466 lakhs pool will take ~24 quarters (~6 years) to fully amortise. This confirms the lease period is approximately 6 years. The flat rate also means the 3rd aircraft's pre-op costs are still being accumulated (not yet amortised), which will cause a step-up when that aircraft becomes fully operational.

Deferred Revenue Expenditure: Build-Up & Amortisation

*9M FY26 additions estimated: Other Non-Current Assets grew Rs. 3,395 lakhs net + Rs. 802 amortised = Rs. 4,197 gross additions. Deducting estimated deposit growth (~Rs. 2,462 based on rental/FD/other deposit trends), leaves ~Rs. 1,735 lakhs in new deferred expenditure (likely 3rd aircraft pre-op costs).

Conservative Accounting Methodology

What changes under conservative (Ind AS / IFRS) treatment:

FY25 Conservative P&L (Year ended 31-Mar-2025)

(All figures in Rs. Lakhs)

FY25 Impact: PAT drops 63.6% from Rs. 4,842 to Rs. 1,760 lakhs (Rs. 48.4 Cr to Rs. 17.6 Cr). EPS falls from Rs. 21.61 to Rs. 7.85. This is because Rs. 45.03 Cr of pre-operational dry lease setup costs (lease rentals, crew training, maintenance) were incurred in FY25 but only Rs. 3.50 Cr was charged to the P&L via amortisation. The remaining Rs. 41.53 Cr was hidden in the balance sheet.

FY24 also affected: Rs. 2,312.96 lakhs (Rs. 23.13 Cr) of pre-op costs were capitalised in FY24. Under conservative accounting, this would have been an FY24 expense, reducing that year's profits. This means FY24 reported profits were also overstated.

9M FY26 Conservative P&L (Nine Months ended 31-Dec-2025)

(3 aircraft operational; 3rd aircraft inducted ~Q2/Q3 FY26. All figures in Rs. Lakhs)

9M FY26 Impact: PAT drops only 7.7% from Rs. 9,348 to Rs. 8,630 lakhs (Rs. 93.5 Cr to Rs. 86.3 Cr). The impact is MUCH smaller than FY25 because: (a) the original Rs. 6,816 lakhs of pre-op costs were already fully expensed in FY24-FY25 under conservative accounting, so the Rs. 801.58 lakhs amortisation is being removed, and (b) only the new 3rd aircraft's pre-op costs (~Rs. 1,735 lakhs estimated) need to be expensed. The net additional hit is modest at Rs. 933 lakhs.

Side-by-Side Summary: Reported vs Conservative

What This Tells Us

1. FY25 was massively flattered by deferred expenditure accounting. The company capitalised Rs. 45 Cr of costs that were incurred in FY25 but only amortised Rs. 3.5 Cr to the P&L. Under conservative accounting, the FY25 PAT margin is 7.3% (closer to global cargo airline norms of 5-10%) instead of the reported 20%.

2. By 9M FY26, the distortion is fading. The conservative adjustment reduces PAT by only 7.7% for 9M FY26. This is because the business is now fully operational and generating real revenue against actual costs. The only ongoing distortion is the 3rd aircraft's pre-op costs being capitalised. If no new aircraft are inducted, the gap will shrink to near-zero within 1-2 quarters.

3. But each new aircraft restarts the cycle. The company plans to expand to 10+ aircraft. Each new induction will involve months of pre-operational costs (lease deposits, crew training, regulatory approvals) before revenue begins. If these continue to be capitalised, reported profits will persistently overstate economic reality during expansion phases. Once fleet growth stabilises, the distortion disappears.

4. The underlying business IS profitable. Even under conservative accounting, 9M FY26 shows Rs. 86.3 Cr PAT on Rs. 399 Cr revenue (21.7% margin). This is still well above global cargo airline norms, driven by niche positioning, charter demand, and the ATF exemption. The accounting treatment doesn't create profits from thin air - it just shifts the timing of when costs hit the P&L.

Amortisation Rate: Flat at Rs. 267/Quarter Confirms 6-Year Lease

The amortisation rate has been remarkably flat at Rs. 266-267 lakhs per quarter from Q4 FY25 through Q3 FY26. At Rs. 1,068 lakhs per year, the Rs. 6,466 lakhs pool implies a ~6-year remaining amortisation period. This confirms the aircraft lease tenure. Notably, the rate has NOT increased despite the 3rd aircraft induction, meaning its pre-op costs are still accumulating (not yet being amortised). Expect a step-up to ~Rs. 350-400 lakhs/quarter once the 3rd aircraft's deferred costs begin amortising.

Disclaimer: Analytical exercise for informational purposes. Conservative adjustments use exact figures from BSE filings (Note 12, Note 19, Note 24 of FY25 Annual Report) where available and estimates (marked ~) where period-specific breakdowns are not disclosed. Actual Ind AS restatement may differ. Not investment advice.

AFCOM HOLDINGS LIMITED

Business Deep Dive: Cost Structure, Conservative Accounting,

Based on Investor Presentations, Annual Report & Quarterly Filings | March 2026

1. Understanding the Business Model: Why Margins Are So High

Afcom operates under TWO distinct business models, and understanding both is critical to explaining the margin profile:

1.1 Phase 1: Quasi-Charter / GSSA Model (FY22-H2 FY25)

Before receiving the Air Operator Permit (AOP) on 11-Dec-2024, Afcom was NOT an airline. It operated as a General Sales and Service Agent (GSSA) and charter broker. The company would charter aircraft capacity from other operators and resell cargo space to freight forwarders and shippers. This is a capital-light, commission-based model with inherently lower but stable margins.

How it worked: Shipper/Forwarder hands cargo to Afcom. Afcom books capacity on charter/scheduled flights operated by OTHER airlines. Afcom earns the spread between what it charges shippers and what it pays the aircraft operator. The "Operating Cost" in the P&L during this phase was essentially the cost of purchasing charter capacity from third-party operators.

Margin structure (FY22-FY24): EBITDA margins ranged from 20-25%. This is high for a GSSA because Afcom was specialising in niche India-ASEAN cargo routes where it had pricing power. However, the company had no aircraft, no crew, no maintenance costs - it was purely a trading/brokerage business.

1.2 Phase 2: Dry Lease Airline Model (Dec 2024 onwards)

After receiving the AOP, Afcom became India's only standalone cargo airline. It now operates its own aircraft under dry lease from Spectre Air Capital LLC. Under a dry lease, the lessor provides ONLY the aircraft hull. Afcom is responsible for everything else: pilots, crew, fuel, maintenance, insurance, ground handling, route planning.

How it works now: Afcom leases 3 Boeing 737-800 BCF aircraft (22 tonnes each). It hires its own pilots, arranges its own maintenance, buys its own fuel, and handles its own ground operations. It sells cargo capacity directly to forwarders and shippers on its own flights, plus operates pure charter services for ad-hoc demand.

Why margins EXPANDED after transitioning: Counter-intuitively, moving from capital-light GSSA to capital-heavy airline IMPROVED margins. This is because: (a) cutting out the third-party operator eliminates their margin (typically 15-25% of charter cost), (b) Afcom captures the full yield-to-cost spread rather than just a commission, (c) charter demand surged in FY26 due to Middle East disruptions, and (d) the ATF tax exemption as Designated Indian Carrier saves 5-7% on fuel costs.

2. Granular Cost Structure Analysis (from Investor Presentation Pie Charts)

2.1 Fixed vs Variable Cost Split

2.2 Line-by-Line Explanation of Each Cost

Aircraft Rental (33-37% of fixed cost, ~Rs. 1.5 Cr/month/aircraft): This is the dry lease payment to Spectre Air Capital LLC. The lease is for 96 months (8 years). This is a contractual obligation regardless of whether flights occur. For 3 aircraft at an estimated $50-60K/month each for narrow-body 737-800 BCFs, this comes to roughly Rs. 1.2-1.5 Cr/month per aircraft. This is MUCH cheaper than wide-body 777F leases ($600-800K/month), which is why the narrow-body strategy generates superior margins.

Fuel (62-63% of variable cost, largest single expense): Aviation Turbine Fuel (ATF) is the single largest cost. A 737-800 burns approximately 2,500 kg/hour. At current ATF prices of ~$800/MT, fuel costs roughly $2,000/hour of flight. With the Designated Indian Carrier status (Feb 2026), Afcom gets a 29% VAT exemption on Indian ATF uplift, saving an estimated Rs. 15-20 lakhs per month across the fleet. This is a structural advantage over foreign carriers operating in India.

Crew Salary & Per Diem (39-41% of fixed cost): Each 737 requires a minimum of 4 command pilots and 4 first officers for round-the-clock operations. At Indian cargo airline pay scales (~Rs. 5-8 lakhs/month for captains, Rs. 3-5 lakhs for FOs), plus per diem allowances for international layovers (Singapore, Bangkok, Dubai), this is approximately Rs. 50-70 lakhs/month per aircraft.

Maintenance Reserve (12-13% of fixed cost): This is NOT actual maintenance spend. It is a monthly accrual paid to a maintenance reserve fund (held by or on behalf of the lessor) to cover future heavy checks (C-checks every 18-24 months, D-checks every 6-8 years). Typical maintenance reserves for 737-800 are $100-150/flight hour for airframe plus $200-300/flight hour for engines. This money is locked up until checks occur.

Trip Support / Overflight Charges (20-26% of variable cost): This includes: Route Navigation Facility Charges (RNFC) for using Indian airspace, overflight charges for foreign airspaces (Sri Lanka, Myanmar, Thailand, Singapore), EUROCONTROL equivalent charges in ASEAN, and communication charges. These are distance-based and unavoidable. The India-Singapore route (~3,500 km) crosses multiple FIRs.

Ground Handling (3-10% of variable cost - INCREASING): Cargo loading/unloading, ULD management, ramp handling, cargo warehouse fees at each station. The sharp increase from 3% to 10% in Q3 FY26 reflects the third aircraft and expanded stations (Dubai, new ASEAN points). Ground handling at Changi (Singapore) alone costs $3,000-5,000 per turn.

Insurance (6% of fixed cost): Hull insurance on three 737-800 aircraft (insured value ~$15-20M each) plus liability insurance (third-party, cargo liability). Premium rates for narrow-body freighters are typically 0.5-1.5% of hull value, yielding Rs. 5-8 lakhs/month per aircraft.

Commission (1% of variable cost): Sales commission paid to GSSAs (Global Sales & Service Agents) and freight forwarders who book cargo on Afcom flights. At 1% of variable cost, this is extremely low, suggesting most sales are direct or through captive GSSAs (TT Group is their India GSSA partner).

Finance Cost (3% of other/overhead): Interest on short-term borrowings (working capital lines) and any term debt. At Rs. 285 lakhs for 9M FY26, this is very modest, reflecting the company's conservative capital structure with D/E of 0.12.

Amortisation of Dry Lease Expenses (25% of other/overhead): This is the NON-CASH charge for the Rs. 6,466 lakhs of capitalised pre-operational costs (discussed in detail in the conservative accounting section). At Rs. 267 lakhs/quarter, this reduces reported profit without impacting cash. Under conservative accounting, this line item would not exist.

3. Why Can Afcom Generate 25%+ PAT Margins on Cargo Delivery?

A 25% net margin in air cargo is extraordinary. Global cargo airlines average 2-3% EBITDA margins historically. Here is exactly why Afcom is different:

1. The Yield-Cost Spread Is Exceptional: Revenue per kg: $2.56 (Q3 FY26). Cost per kg: $1.34 (Q3 FY26). That is a 47.7% gross spread ($1.22/kg). This is because Afcom operates niche India-ASEAN routes with limited direct narrow-body freighter competition. Bellhold capacity on passenger flights (IndiGo, Air India) is constrained, and wide-body freighters (Turkish, Emirates) are too large for many India-ASEAN pairs. The 737-800 BCF at 22 tonnes is perfectly sized for these thin routes.

2. Narrow-Body Economics Are Fundamentally Different from Wide-Body: A 737-800 BCF lease costs ~$50-60K/month vs $600-800K for a 777F. Fuel burn is ~2,500 kg/hr vs ~8,000 kg/hr. Crew of 2 vs 2+relief. Maintenance reserves are 1/3rd. The breakeven payload is ~8-10 tonnes (vs 40+ tonnes for a 777F). On routes averaging 15 tonnes per trip, the 737 achieves 68% load factor, well above breakeven. This is why narrow-body cargo on right-sized routes generates structurally higher margins.

3. Charter Premium Is Massive: In H1 FY26, Afcom operated 819 pure charters; in Q3 FY26 alone, 242 charters. Charter pricing is 30-50% above scheduled/contracted rates. The Middle East conflict (Houthi attacks disrupting Red Sea shipping) has created emergency demand for air cargo charters at premium rates. This is a cyclical tailwind that will eventually normalise.

4. India Positioning = Structural Cost Advantage: Indian crew salaries are 40-60% below Western airline pay scales. Indian maintenance costs are lower. The ATF exemption (29% VAT saved as Designated Indian Carrier) directly reduces the largest variable cost. Office and admin costs in Chennai are a fraction of Singapore, Dubai, or Luxembourg. Afcom has First World yields on Third World costs.

5. Asset-Light Despite Being an Airline: Afcom doesn't OWN any aircraft. It dry-leases from Spectre Air Capital. This means no depreciation on aircraft (the lessor bears it), no residual value risk, and the ability to return aircraft when leases expire. The fixed assets on the balance sheet are just Rs. 17.45 Cr of ground equipment and office assets.

6. The Accounting Treatment Helps: By capitalising Rs. 64.66 Cr of pre-operational costs and amortising them over 6 years (~Rs. 10.68 Cr/year), the reported P&L shows lower operating expenses than the economic reality. Under conservative accounting (see Section 4), the 9M FY26 PAT margin would be ~21.7% instead of 23.5% - still very high, confirming the underlying business is genuinely profitable.

4. Conservative Accounting P&L (Restated)

4.1 FY25 (Full Year ended 31-Mar-2025)

4.2 Nine Months FY26 (ended 31-Dec-2025)

By 9M FY26, the accounting distortion narrows to just 1.8 percentage points on PAT margin. The business is genuinely generating ~22% PAT margins even under conservative accounting.

5. Cash Flow Deep Dive: Where Does the Accounting Profit Go?

This is the most critical section. Afcom shows strong accounting profits but has had persistently negative or weak free cash flow. Let us trace every rupee.

5.1 Historical Cash Flow (FY22 - 9M FY26)

*FY24 OCF figure from investor presentation. FY25 figure from annual results differs due to reclassification after dry lease transition.

5.2 Where Exactly Did the Money Go? (FY25 Profit Waterfall)

FY25 PAT was Rs. 4,842 lakhs (Rs. 48.4 Cr). But the company ended the year with just Rs. 8.54 lakhs of cash. Here is the complete reconciliation:

5.3 The Three Black Holes Absorbing All Profits

Black Hole #1: Deferred Revenue Expenditure (Rs. 45 Cr in FY25). The company spent Rs. 45 Cr on pre-operational setup (lease rentals, crew training, maintenance) for the dry lease business before receiving AOP in Dec 2024. This cash was spent but was NOT charged to the P&L - instead it went to the balance sheet. So accounting profits were Rs. 48.4 Cr but Rs. 45 Cr of real cash was consumed by costs that were capitalised. Under conservative accounting, FY25 PAT would be only Rs. 17.6 Cr, and the OCF would be proportionally different.

Black Hole #2: Deposits Locked with Lessors & Banks (Rs. 55 Cr in FY25). Rental deposits of Rs. 16 Cr to Spectre Air Capital, Fixed Deposits of Rs. 39 Cr (lien-marked for credit facilities), plus fuel and maintenance deposits. These are real cash sitting in someone else's accounts. The FDs at least earn interest, but the rental deposits are essentially interest-free loans to the lessor for the 8-year lease duration.

Black Hole #3: Trade Receivables Explosion (Rs. 40 Cr increase in FY25). Revenue grew 64% but receivables grew 176%. DSO (Days Sales Outstanding) stretched from ~56 days to ~95 days. This means Afcom is delivering cargo and generating revenue but not collecting cash fast enough. At Rs. 62.4 Cr of receivables on Rs. 239 Cr revenue, nearly 3 months of revenue is stuck in receivables. By Q3 FY26, receivables have grown further to Rs. 96.2 Cr. Charter clients and freight forwarders are paying slowly.

5.4 Cash Flow Reconciliation: 9M FY26

By 9M FY26, the picture changes dramatically because of the preference share and warrant issuance:

THE KEY INSIGHT: Of the Rs. 140 Cr cash on the balance sheet at Q3 FY26, Rs. 129.6 Cr came from preference share and warrant subscriptions - NOT from operations. Actual operating cash generation for 9 months was only ~Rs. 13.8 Cr against Rs. 93.5 Cr of reported profit. The remaining ~Rs. 80 Cr of "missing" cash went to: (a) working capital build-up (receivables growth of ~Rs. 34 Cr, inventory and other current assets growth of ~Rs. 45 Cr), and (b) non-current asset additions of Rs. 34 Cr (deposits and deferred expenditure for 3rd aircraft).

5.5 Cash Conversion: Reported vs Reality

The company has generated Rs. 186 Cr of cumulative accounting profits (FY22-9M FY26) but approximately Rs. 120 Cr of NEGATIVE cumulative free cash flow. In other words, every rupee of profit (and then some) has been reinvested into the business - deposits, working capital, pre-operational costs, and growth capex. The business has been entirely funded by: (a) IPO proceeds (~Rs. 52 Cr in FY25), (b) short-term borrowings (~Rs. 25 Cr), and (c) preference shares/warrants (~Rs. 130 Cr in FY26). This is not unusual for a high-growth airline in its build-out phase, but investors should understand that dividends or share buybacks are years away.

6. Future Prospects: 3-Aircraft Fleet Under Conservative Accounting

6.1 Projected FY26 Full Year (Conservative Basis)

FY26 should be the first year of meaningfully positive free cash flow as: (a) major deposit payments are behind (aircraft already inducted), (b) deferred expenditure additions will slow, and (c) the full revenue benefit of 3 aircraft flows through. However, OCF/PAT will still be well below 100% due to working capital needs.

6.2 Annual Economics Per Aircraft (737-800 BCF)

At 3 aircraft, annualised fleet revenue of ~Rs. 530 Cr with costs of ~Rs. 360-400 Cr yields fleet EBITDA of Rs. 130-170 Cr. After depreciation, amortisation, interest, and tax, net profit on a conservative basis is Rs. 80-110 Cr.

6.3 Key Risks to Current Margin Structure

6.4 Bull Case vs Bear Case (FY27 Outlook)

Disclaimer: This analysis is for informational purposes only and does not constitute investment advice. Financial data extracted from publicly filed documents with BSE and company investor presentations. Pie chart data from "Latest Corporate Presentation" and "H1 FY25 Investor Presentation." All projections are estimates. Investors should conduct independent due diligence.