Delisting Companies

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Watch list
The following are fundamentally strong companies identified by Capital Market analysts. The list is constantly reviewed and updated, adding scrips with upward potential and removing those that have, in our opinion, exhausted their run.
COMPANY
3i Infotech 3M India Ador Fontech. Ador Welding Agro Tech Foods. Asian Hotels (N) Astral Poly BHEL Bajaj Electric BASF India Bata India Bayer Crop Sci. BEML Ltd Bharat Bijlee Bharat Electro. Blue Dart Exp. Blue Star Bosch Castrol India Clariant Chemica CMC Cox & Kings CRISIL Cromp. Greaves Esab India Everest Inds. Fag Bearings Federal Bank Foseco India GSFC GAIL (India) GEI Industrial Godrej Consumer Grasim Inds Greaves Cotton Grindwell Norton Guj Apollo Inds Guj Gas Company Guj.St.Petronet HDFC H T Media HCL Technologies HDFC Bank Hikal Honda Siel Power Honeywell Auto IDFC ICRA IFGL Refract. IL&FS Transport India NipponElec Indian Hotels
IND. NO.
28 101 41 41 83 57 75 39 36 22 58 68 44 39 43 32 2 10 22 22 26 104 106 39 41 20 13 12 22 49 106 44 65 107 46 1 44 106 106 51 47 27 12 71 39 43 50 106 81 45 10 57
PRICE (Rs) 25-04-2011

48 3941 106 183 366 224 167 2075 276 683 418 953 725 1161 1831 1498 367 6548 470 710 2033 430 6565 282 520 167 1200 437 546 367 479 214 373 2467 92 225 155 376 103 731 155 515 2390 314 392 2425 156 1120 39 225 263 88
TTM YEAR
201103 201012 201012 201012 201012 201012 201012 201012 201012 201012 201012 201012 201012 201012 201012 201012 201012 201012 201012 201012 201103 201012 201103 201012 201012 201012 201103 201012 201103 201012 201012 201012 201012 201012 201012 201012 201012 201012 201012 201012 201012 201103 201103 201012 201012 201103 201012 201012 201012 201009 201012 201012
TTM EPS (Rs)

5.7 87.3 9.7 19.8 7.7 15.2 14.9 104.6 12.6 29.5 14.8 37.4 56.2 89.8 70.3 39.8 19.8 273.5 19.8 38.9 102.8 10.1 234.2 10.3 34.3 23.7 86.3 31.1 32.7 73.0 29.1 15.1 11.6 117.5 5.8 14.7 12.0 18.1 8.2 22.6 9.0 15.2 84.4 31.9 24.5 121.5 8.2 47.3 2.1 0.0 30.8 1.4
P/E
8.4 45.1 10.9 9.2 47.4 14.8 11.2 19.8 21.9 23.1 28.2 25.5 12.9 12.9 26.1 37.6 18.5 23.9 23.7 18.3 19.8 42.7 28.0 27.3 15.2 7.0 13.9 14.1 16.7 5.0 16.5 14.2 32.2 21.0 15.9 15.4 12.9 20.8 12.5 32.3 17.3 33.8 28.3 9.8 16.0 20.0 19.0 23.7 18.2 0.0 8.6 61.1
COMPANY
Ineos ABS (India Infosys Tech. Ingersoll-Rand Intl. Travel Hse J & K Bank J B Chemicals Jagran Prakashan JMC Projects Jyoti Structures Kalpataru Power Kennametal India Kirl.Pneumatic KPIT Infosys. KSB Pumps L G Balakrishnan Lak. Mach. Works Larsen & Toubro LIC Housing Fin. M&M M M Forgings Manjushree Tech. Maruti Suzuki McNally Bharat MIC Electronics Monsanto India MphasiS Mundra Port Oracle Fin.Serv. Petron Engg. Pidilite Inds. Rallis India Reliance Inds. Rishi Laser Shanthi Gears Shree Cement Siemens Sintex Inds. SKF India South Ind.Bank St Bk of Bikaner St Bk of India Sun TV Network Sundram Fasten. Swaraj Engines Tata Chemicals Tata Global TCS Thermax Thomas Cook Vesuvius India V-Guard Inds. Vivimed Labs.
IND. NO.
69 27 25 104 12 70 47 31 102 102 44 25 28 78 10 92 45 51 7 17 62 6 45 43 68 27 106 27 45 22 67 80 44 44 18 43 108 13 12 11 11 47 48 46 49 89 27 44 104 81 39 22
PRICE (Rs) 25-04-2011

529 2942 507 210 821 161 121 157 91 131 615 442 176 278 305 2425 1722 226 768 137 80 1327 211 26 1786 455 147 2116 421 160 1453 1009 55 38 1992 837 179 630 23 559 2919 422 60 454 378 102 1198 660 61 353 191 294
TTM YEAR
201012 201103 201012 201012 201012 201012 201012 201012 201012 201012 201012 201012 201012 201012 201012 201012 201012 201012 201012 201103 201012 201012 201012 201012 201012 201101 201012 201012 201012 201012 201012 201103 201012 201012 201012 201012 201012 201012 201012 201012 201012 201012 201012 201012 201012 201012 201103 201012 201012 201103 201012 201012
TTM EPS (Rs)

39.2 102.3 20.9 19.5 123.1 15.6 6.2 15.3 12.2 12.1 30.9 31.6 5.5 14.0 45.7 137.8 56.7 16.0 41.5 18.4 10.4 76.4 14.9 5.0 66.3 45.8 4.1 92.8 35.4 6.4 65.6 62.0 6.3 2.9 21.8 24.0 11.9 31.9 2.2 75.7 159.3 18.5 4.7 33.2 16.3 2.7 36.0 29.8 1.5 25.3 11.6 25.4
P/E
13.5 28.8 24.2 10.8 6.7 10.3 19.6 10.3 7.5 10.8 19.9 14.0 32.3 19.9 6.7 17.6 30.4 14.1 18.5 7.5 7.7 17.4 14.1 5.2 27.0 9.9 35.6 22.8 11.9 25.2 22.2 16.3 8.7 13.2 91.5 34.9 15.0 19.8 10.4 7.4 18.3 22.8 12.7 13.7 23.2 37.4 33.3 22.2 40.7 13.9 16.5 11.6
TTM: Trailing 12 months. Note: India Nippon Electricals replaces Suprajit Engineering.
May 02 15, 2011 CAPITAL MARKET
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StockWatch
Motorcycles and Scooters account for 70% of the companys business. In the three-wheeler space, India Nippons major customers are Piaggio and TVS Motors, while Honda Siel Power and Birla Power Solutions are the main cusCaters to all the major two-, three-wheeler and portable genset tomers for its gensets. In 2010, the complayers, who are likely to sustain growth in future as well pany started supplying external combustion units for diesel passenger cars and has Incorporated in 1984, India Nippon ers, wood saw cutters and other types of Electricals (India Nippon) was converted IC engines. Currently, the companys range a contract with Tata Motors. India Nippons sales rose a strong 45% in 1986 into a joint venture between caters to two- and four-stroke engine cato Rs 60.18 crore in the quarter ended DeLucas Indian Service, a wholly-owned pacity of 30 cc to 175 cc. It has acquired cember 2010. OPM improved 140 basis subsidiary of Lucas-TVS, and Kokusan capability to provide solutions for other points (bps) to 13.3%, OP 62% to Rs 7.98 Denki Company, Japan, a group comapplications also. crore. Other income fell 3% to Rs 1.08 crore. pany of Hitachi Japan, to manufacture Besides TVS Motors, India Nippon has Interest cost was at Rs 5 lakh as against Rs electronic ignition systems for two- and a sizeable exposure to other manufacturers 3 lakh and depreciation fell 14% to Rs 96 three-wheelers and portable engines. Cursuch as Hero Honda and Bajaj Auto as well. lakh. As a result, PBT rocketed 65% to Rs rently, foreign promoters hold 20.52% These three companies along with Honda 8.05 crore. Taxes grew 144% to Rs 2.07 crore, equity stake and Indian promoters despite which net profit ballooned 48% to 45.87%. Over the years, the company has A crucial peg Rs 5.98 crore. enlarged its customer base and now supIndia Nippon reported an impressive rise plies to most manufacturers of two- and India Nippon Electricals is a leader in in sales of 41% to Rs 171.81 crore for the three-wheelers and gensets. the ignition system, a critical componine months ended December 2010. OPM Commencing its operation in Hosur nent used to manufacture two- and rose 80 bps to 14.8%, taking OP up 49% to (Tamil Nadu), India Nippon has set up three-wheelers and portable engines Rs 25.35 crore. Net profit increased an imtwo more units one is Pondicherry and pressive 35% to Rs 19.76 crore. the other at Rewari in Haryana to be The auto industry, especially the nearer to customers and offer service two- and three-wheeler segments, saw such as just-in-time supplies and to imstrong growth in the fiscal ended March prove response time for introduction of 2011 (FY 2011). The growth uptrend is new products. expected to continue in FY 2012 as the The ignition system is one of the critipower situation in the country not showcal components in two- and three-wheeling any signs of improvement. Supplies ers and portable engines as it provides the to a new customer in the US have cominitial power to start the engine, the conmenced. The customer has evinced intertinued spark that keeps the engine runest to source one more product from ning and is responsible for a safe the company. Overall, exports prosshut-down operation. With increase India Nippon Electricals : Financials pects are good. in buyer expectation and fall in the We expect India Nippon to regcosts of technology (electronic igni0803 0903 1003 1103 1203 ister sales and net profit of Rs tion systems), it is increasingly be(12) (12) (12) (12P) (12P) 237.62 crore, and Rs 26.97 crore, coming imperative for many twoSales 120.23 127.92 169.08 237.62 297.03 respectively, in FY 2011. On equity wheeler manufacturers to incorporate OPM (%) 12.6 8.0 14.0 14.8 15.0 of Rs 8.08 crore and face value of this component in their vehicles. ElecOP 15.13 10.20 23.68 35.22 44.67 Rs 10 per share, EPS works out to tronic ignition systems can also play Other inc. 6.28 7.73 5.84 4.51 4.96 Rs 33.4, which can go up to Rs 41.8 a key role in improving fuel efficiency PBIDT 21.41 17.93 29.52 39.73 49.63 in FY 2012. and lowering the emission levels of Interest 0.11 0.17 0.18 0.18 0.19 India Nippon is a zero-debt comtwo-wheelers. PBDT 21.3 17.76 29.34 39.55 49.45 pany with cash and liquid investIndia Nippons product portfolio Dep. 3.26 2.84 3.57 3.64 4.37 ment of around Rs 70 crore end offers a full range of ignition system PBT 18.04 14.92 25.77 35.91 45.07 March 2010. Book value is set to solutions including custom-built igniTotal Tax 3.02 3.17 5.85 8.94 11.27 cross Rs 210 as of March 2011. The tion system parts such as flywheel PAT 15.02 11.75 19.92 26.97 33.80 company is expected to give divimagneto, digital and analog CDI and dend of 100% or Rs 10 per share in EPS (Rs) * 18.6 14.5 24.7 33.4 41.8 TCI, regulators and rectifiers, and igFY 2012. The share price trades at * Annualised on current equity of Rs 8.08 crore. EO: Extraordinary items. nition coils needed for application in Face Value: Rs 10 per share. Figures in Rs crore. (P): Projections. Rs 263. P/E on FY 2011 projected various types of engines fitted in moEPS is calculated after excluding EO and relevant tax. EPS is 7.9, which falls to 6.3 on FY torcycles, scooters, mopeds, threeSource: Capitaline Databases 2012 projected EPS. wheelers, portable gensets, lawn mov-
India Nippon Electricals
Ignites strong confidence
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StocksInAction StocksInAction
Delisting mania
MNC associate firms sizzle on rising speculation of open offers from foreign promoters to take their Indian arms private
Multinational companies, or MNCs, are popular among investors due to their track record of paying hefty dividends, steady business growth supported by professional management, and a cash-rich and debt-free status. Shares of 11 MNC firms have logged an average rise of 54.85% in the year to 21 April 2011, with 10 of them logging gains that have outpaced the BSE Sensexs 12.19% advance by a hefty margin. Apart from the traditional theory, another theme developing recently is that of delisting, making MNC shares the flavor of the season. This trigger has bolstered sentiment for these shares. Shares of select MNC associate firms have been in demand on buzz of open offer from their parent firms, while others have advanced on steady accumulation by savvy investors in anticipation of the Indian firm going private sooner or later. As per the latest guidelines, a company can be delisted from the stock exchanges if the promoter group is successful in ramping up its stake above 90% through open offer. In case the promoter holding is already over 90%, then at least 50% of the delisting offer size has to be acquired to term it successful. Earlier, promoters with more than 60% stake were allowed to go for delisting. The method to arrive at the delisting price was not transparent and investors were given a take-it or leave-it option by the companies. Government norms in the 1970s had forced many MNC associates to list on Indian bourses. MNC associate stocks have been on a roll ever since a June 2010 government notification made it mandatory for all private companies to boost their public holding to 25% within three years to remain listed on the bourses. To comply with the norms, foreign promoters are more likely to opt for delisting their Indian arm rather than dilute their stake. For delisting to be successful, an attractive premium to the ruling market price has to be offered. The new norms further require all listed companies to maintain at least 25% public shareholding at all times. MNC shares northbound journey accelerated after Sweden-based promoter of construction equipment maker Atlas Copco AB agreed in March 2011 to pay Rs 2750 per
Withdrawal symptoms
share to buy out minority shareholders in Atlas Copco India a hefty premium of 92.84% over its floor price of Rs 1426 per equity share. The foreign promoter held 83.77% stake in the Indian unit, sparking speculation that firms with foreign holding of 80% and above have high probability of coming out with delisting open offers. MNC associate stocks that have seen action based on delisting include: Astrazeneca Pharma India: The Bangalorebased pharma firm has gained 42.15% to Rs 1308.80 in the year to 21 April 2011 as very high promoter holding makes it a probable
Curtain call?
Probable delisting candidates COMPANY NAME
BOC India Alfa Laval (India) Elantas Beck India Kennametal India Fairfield Atlas Ineos ABS (India) Blue Dart Express Oracle Financial Timken India 3M India BSE Sensex
* till 21 April 2011
FOREIGN PROMOTER 1-YEAR HOLDING (%) RETURN (%)*

90 89.48 88.77 88.55 88.16 83.91 83.33 81.03 80.44 80.02 76.01 NA 42.15 43.52 17.73 136.95 51.67 41.53 75.61 54.24 -9.71 92.60 57.06 12.19
Astrazeneca Pharma India
delisting candidate. Shareholding of the Sweden-based drug maker Astrazeneca Pharmaceuticals AB in Astrazeneca Pharma India has been 90% and above since December 2002. Attempts made to delist the company have failed five times since then. The first offer to buy out the non-promoter holding of 43.51% at Rs 375 was made in March 2002 and the fourth at Rs 875 a piece in July 2004. A fifth attempt in September 2010, at an indicative delisting price of Rs 1152 per share, flopped at the onset as votes cast by the shareholders through a postal ballot in favour of the resolution were less than twice the number of votes against the resolution. Under the new delisting regulations, companies need to obtain prior approval by postal ballot of at least two-thirds of the public shareholders. The Astrazeneca Pharma India stock has seen a steady rise since the sub Rs 100-mark mid 2003 to Rs 1300 mid 2010. The scrip hit a record high of Rs 1448.45 on 30 June 2010 from its 52-week low of Rs 802 on 26 May 2010. The shares are richly valued and command a P/E multiple of 58.66 based on trailing 12-month EPS of Rs 22.31, indicating high probability of a likely delisting offer. Honeywell Automation India: The Punebased electronics firm recovered to settle at Rs 2429.50 on 21 April 2011 following reports of a likely delisting offer from the parent. However, there has been no clarification by the company. Earlier, the shares saw a steady retreat, after a record high of Rs 3279.85 on 22 April 2010, to drop to a 52week low of Rs 2015 on 11 February 2011 when the company reported a fall in net profit in the year ended December 2010 (CY 2010) over CY 2009. Honeywell Automation India, an 81.24% subsidiary of US-based Honeywell International, is an integrated automation and software solutions provider. Public holding stood at 12.02% end December 2010. No open offer has been made by the parent firm to shore up equity stake in the past. The shares trade at a P/E multiple of 20.49 based on trailing 12-month EPS of Rs 118.56. Fresenius Kabi Oncology: The New Delhi-based oncology drug maker staged a rebound to settle at Rs 122.45 on 21 April 2011, boosted by reports of a likely delisting offer from the parent. However, there has been no clarification by the company. Fresenius Kabi Oncology had acquired Dabur Pharma in 2008 and renamed it thereafter. Latest promoter ownership
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StocksInAction
stood at 90%, with public stake pegged at 5.96%. Promoters had boosted their holding to 90.89% in July 2008 after acquiring 17.62% equity through an open offer for 20% stake to the minority shareholders at Rs 76.50 per share. The shares of Fresenius Kabi Oncology trade at a P/E multiple of 36.99 based on trailing 12-month EPS of Rs 3.31. The company did not declare dividend since the last four years to March 2010. Alfa Laval (India): The Pune-based capital goods maker surged to a record high of Rs 1760 on 8 April 2011 on rising buzz of an open offer from the Swedish-based Alfa Laval Corporate AB, which owned 88.77% stake end March 2011. However, there has been no clarification by the company. The scrip has advanced a sharp 57.98% since sliding to a 52-week low of Rs 1114 on 25 February 2011 on reporting fall in net profit and sales in the year ended December 2010 (CY 2010) over CY 2009. The parent firm has made three open offers to acquire shares from the public. It shored up its stake from 51% to 64.1% through an open offer at Rs 164 per share in 2001 and to 76.73% at Rs 1300 per share in 2007 and further to 88.77% at Rs 1000 per share in 2009. The 2009 offer, which was revised upwards from the earlier announced Rs 950 per share, was to take advantage of the market slide caused by the global market meltdown. The parent had also sweetened the 2007 offer from the earlier announced Rs 875 per share as it failed to elicit the desired shareholder response. The Alfa Laval (India) stock has seen a multifold surge to Rs 1725 on 21 April 2011 from Rs 151 on 1 January 2001 buoyed by the stake ramp-up by the parent. The shares trade at a P/E multiple of 31.57 based on trailing 12-month EPS of Rs 54.64. BOC India: The Kolkata-based industrial gases producer advanced 43.52% to Rs 306.35 in the year to 21 April 2011 amid volatile swings. From the Rs 200 level in June 2010, the stock rallied to Rs 360 in December 2010 only to slide to Rs 225 in February 2011. The scrip recommenced its upmove to gain 15.73% to Rs 306.35 in the month to 21 April 2011 on buzz of fresh open offer from the parent. However, there has been no clarification by the company. The shares trade at a P/E multiple of 27.9 based on trailing 12-months EPS of Rs 10.98. The volatility was caused by the Germany-based Linde Groups failed attempts
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Once bitten
Volatility in BOC India was caused by the Germany-based Linde Groups failed attempts mid 2010 to delist with the floor price pegged at Rs 225.29 a piece
390
BOC India
340 290 240 190
22/04/2010
21/04/2011
mid 2010 to acquire the remaining shares at a price discovered through a delisting open offer, with the floor price pegged at Rs 225.29 a piece. When the offer closed in January 2011, the number of shares tendered by the shareholders was less than the minimum number of shares required to successfully complete the offer. The Linde group owned 89.48% stake in BOC India, with public holding pegged at 10.53% end March 2011. In 2008, the foreign promoter had announced an open offer to acquire a 20% stake in the Indian unit at Rs 165 per share, which was later revised to Rs 200 per share, following the global takeover of BOC Indias erstwhile parent firm BOC Plc. Dividend payment per share declined steadily to Rs 1.5 in the year ended December 2010 (CY 2010) from Rs 2.5 in CY 2007. Elantas Beck India: The Pune-based specialty chemicals maker shot up 183.54% to Rs 1404.25 in the year to 30 March 2011 after striking a record high of Rs 1419 on talk of a probable delisting offer from the parent firm at a significant premium to the market price. Thereafter, the stock cooled to settle at Rs 1263.65 by 21 April 2011 as there was no clarification by the company on the delisting speculation. The shares trade at a P/E multiple of 31.93 based on trailing 12-months EPS of Rs 39.57 Plans of the German-based Elantas Gmbh, which owned 88.56% stake in Elantas Beck India end December 2010, to buy out the minority shareholders at a floor price of Rs 219.10 per share and an indicative price of Rs 330 failed in 2010 due to poor investor response. Ineos ABS (India): The Baroda-based petrochemicals firm advanced 41.99% to Rs
525.35 in the month to 21 April 2011 after striking a record high of Rs 549.80 following reports that the companys parent has initiated the delisting process of its Indian unit and might delist shares at Rs 800 a piece. However, there has been no clarification by the company. European chemical giant Ineos ABS Jersey held 83.33% stake in Ineos ABS (India) while public holding stood at 13.57% end March 2011. The foreign promoter shored up its holding in Ineos ABS (India) after acquiring 13.53% stake at Rs 201 per share in an open offer in 2008. The shares of Ineos ABS (India) trade at a P/E multiple of 13.42 based on trailing 12-month EPS of Rs 39.16. Kennametal India: The Bangalore-based machine tools maker gained 51.67% to Rs 602.35 in the year to 21 April 2011 on speculation of a likely open offer citing high foreign promoter holding. However, there has been no clarification by the company. The advance came even as the US-based parent firms December 2010 plan to take its Indian arm private hit a roadblock after its shareholders rejected the delisting proposal on perception of high future growth potential and attractive valuations. The US-based Kennametal Inc, owning an 88.16% stake in Kennametal India end March 2011, proposed to buy out the minority shareholders and had set a floor price at Rs 514.98 a share. Consequently, the stock shot up to a record high of Rs 684.80 on 3 January 2011, up 110.06% from its 52-week low of Rs 326 on 2 June 2010. Following the recent upsurge, the shares trade at a P/E multiple of 19.49 based on trailing 12-month EPS of Rs 30.91 Timken India: The Bangalore-based auto ancillary firm gained 29.19% to Rs 214.85 in the month to 21 April 2011 after striking a 52-week high of Rs 222.90 on 18 April 2011, taking wings from speculation of delisting offer from the foreign promoter. However, there has been no clarification by the company. Timken India, formerly Tata Timken, was co-promoted by The Timken Company, US, and Indian steel giant Tata Steel. In 1999, Timken acquired Tata Steels 40% equity and, consequently, increased its holding to the current 80.02%. Despite being profitable since data available from 2000, the company is yet to reward equity shareholders with dividend and bonus shares. The shares trade at a P/E multiple of 21.90 based on trailing 12-month EPS of Rs 9.81 Hitesh Dharawat
ApnaMoney
Investment Strategy
ApnaMoney
Taxation
Proof of intention
When an employer files e-returns, it is presumed the statements in the returns have been verified
The Maharashtra State Tax on Professions, Trades, Callings & Employments Rules, 1975, have been amended through a notification dated 31 January 2011. It was mandatory for employers who are liable to file their profession tax returns monthly to upload their returns in electronic mode from 1 February 2011, as per the notification isMay 02 15, 2011 CAPITAL MARKET
sued in November 2010. From 31 January 2011, as per the newly inserted Rule 11(2A), profession tax return in electronic form is to be in form IIIB and payment as per return is to made by challan MTR6. There are two MTR-6 challans: one for payment for Central sales tax and one for payment of profession tax. Both are differ-
ent challans. Forms IIIA and Form VIII will continue to apply for physical returns. If the certificate of registration held by the employer requires an amendment of registration number, then the prescribed authority have to make necessary amendments in the certificate and issue a new certificate of registration to ensure compatibility with the automated system. When a new certificate of registration is issued to the employer, then the certificate of registration issued earlier will stand amended. At present, employers whose yearly profession tax liability is less than Rs 5000 an required to file returns yearly, whose yearly tax liability is between Rs 5000 to Rs 20000 are required to file returns quarterly, and whose yearly tax liability is more than Rs 20000 are required to upload returns monthly. From 1 April 2011, if tax liability of an employer during the previous year is less than Rs 50000, he will be required to file profession tax returns yearly. If such tax liability is Rs 50000 or more, then he will be required to upload profession tax returns monthly. Quarterly returns are no longer there. For new profession tax registrations, returns are to be uploaded monthly during the first year of registration. Rule 11E state that e-returns are presumed to be true returns. When an employer has enrolled himself with the www.mahavat.gov.in website for availing e-services including the service of filing e-returns, has created his own password and files e-returns using the password so created by him, it is presumed that the statements contained in the returns filed electronically are true to the best of his knowledge and belief. Tushar Doctor
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ApnaMoney
Investment Strategy
Investment Strategy
Checking the pulse

To know the health of mid-cap companies, focus on auditors comments, FCCB exposure and activities of subsidiaries
Quarterly numbers churned out by companies are important for investors as these reveal their financial and operational performance. However, the notes to accounts that are published along with the quarterly results are also equally important as they provide significant and crucial information to investors. Generally, the notes to accounts disclose a standard set of information including investors grievances, segmental results and matters decided at the board meeting. Many companies also share some kind of off-thetrack information. Thus, it is essential to carefully study the accompanying notes to accounts to make informed decision. Ideally, companies should provide standalone and consolidated results on their websites. However, many mid and small companies do not post their results on the websites promptly. Companies upload results standalone or consolidated as per their will. A few upload scanned copies of the results, which are not readable. In a recent positive development, the Securities and Exchange Board of India has made it mandatory for companies to have updated websites at any given point of time with effect from 1 April 2011. Listed companies should have functional websites with
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the latest information including basic business and financial details, shareholding pattern, corporate governance contact details, and agreements with media companies. Hopefully, this initiative would reduce the hassles of investors in getting information. The number of companies disclosing critical information through the notes could be small. But the quality of information shared could be significantly important to investors because, while analysing the quarterly results, it is essential to ensure apple-to-apple comparison to arrive at the right conclusions and appreciate operational performance of companies in the correct perspective. For instance, one-time profit earned on sale of long-term investment either in the current quarter or the previous quarter and considered under, Other income (OI) could make financials non-comparable. This can be fixed by looking at the notes to accounts. Apart from quantitative details, the qualitative information shared can also assist in evaluating the operational and financial performance of companies. These disclosures include operational costs such as employee cost, exports, greenfield projects, maintenance shutdown, proposed joint ventures, com-
ments on price realisation, completion of expansion plan, performance of newly commissioned projects, launch of retail outlets, decision to set up new plants through special purpose vehicles, issue of work orders, contracts awarded for setting up of additional capacities, installation of major capital equipment, plant upgradation, production disruption, and legal matters and disputes. Companies have also disclosed reasons for better or worse performance due to higher quantum of production and escalating input costs. Interestingly, the notes also provide information about future outlook in the form of annual growth in volume. Also, prior period items of expenses or gain could have an impact on profit. Change in accounting policy needs to be factored to facilitate fair comparison. Information on exceptional items, whether gain or loss, is critical while passing judgement on the financial performance of companies. Capital Market went through the notes to accounts of over 1,200 companies that are fairly liquid on the trading floor. The quarter and nine months refer to the period ended December 2010 unless specified otherwise. Further, standalone results were taken into consideration unless specified otherwise. The notes to accounts also included developments that have taken place post reporting date: 31 December 2010. The focus of this exercise was to capture unusual information disclosed by companies that can add value to investors information kitty. For convenience of the readers, companies are divided into three categories: large caps with market capitalisation of Rs 10000
ApnaMoney
crore and above, mid caps with market capitalisation of Rs 500 crore to Rs 10000, and small caps with market capitalisation of less than Rs 500 crore. This article covers mid-cap companies. The number of companies in the mid-cap and small-cap categories has gone up owing to market correction in recent times. Around 512 mid-cap companies have been examined. Mid-cap companies seems to be nurturing a slew of subsidiaries and associate companies to aggressive develop their businesses. Owing to this, few companies are acting as holding companies, while the actual projects are implemented by subsidiaries. Through the notes to accounts, many mid-cap companies have shared vital information about their subsidiaries, stepdown subsidiaries and associate companies. Information shared comprised subsidiaries making investment in other companies and acquiring companies, acquisition of business through subsidiaries, incorporation of subsidiaries, incorporation of stepdown subsidiaries, restructuring of investment in subsidiaries through transfer within group, additional investment in subsidiaries, mergers and demergers of subsidiaries within group as part of restructuring, winding up and liquidation of subsidiaries, efforts to revive financially sick subsidiaries, divestment of investment in subsidiaries and stepdown subsidiaries, substantial dividend received from subsidiaries, additional capacities developed by subsidiaries and associate companies, expansion plans of subsidiaries, legal disputes involving subsidiaries, disposal of business by subsidiary, progress of subsidiaries and so on. Further, companies have shared information pertaining to their joint ventures such as acquisition of additional equity in JV companies and financial support to JV. Investors need to pay due attention to comments made by auditors in their limited review report. Auditors have made comments and observations on various matters. The comments refers to non-provision toward diminution in value of long-term investments, non-provision for premium on redemption of outstanding foreign currency convertible bonds (FCCBs), non-provision for equity exposure in a subsidiary company that has accumulated losses, unaccrued interest under litigation, non-accounting of minimum alternative tax credit, accounting treatment of deficit arisen out of acquisition of specific assets, cost overrun due to deMay 02 15, 2011 CAPITAL MARKET
Investment Strategy
encashment benefits is one the very common disclosures made by public sector banks. Liabilities arising from gratuity have increased due to amendment to the Payment of Gratuity Act, 1972, which has enhanced gratuity limit. Most banks have made provision based on estimates and or on ad-hoc basis and are planning to write it off over five years. The following company-wise information should be treated as initial pointers and investors need to dig deeper to determine the real impact of information shared. This is the third and last part of a three-part series on mid caps. Crisil: Consolidated other operating expense included foreign exchange loss of Rs 3.7 crore for the year ended December 2010 as against loss of Rs 2.3 crore in the previous year. Consolidated OI for the year ended December 2010 included profit of Rs 32.8 crore on account of sale of shares in Gas Strategies Group and the National Commodity and Derivatives Exchange. OI included Rs 25.1 crore from profit on sale of office space vacated as part of relocation plan to new office building in Mumbai for the year ended December 2010. Havells India: In their report, the auditors have mentioned diminution in value of the companys long-term investment of Rs 715.4 crore in foreign subsidiary company Sylvania as there were accumulated losses. Auditors have relied on the managements representations that the diminution in value of the investment is temporary in nature and, thus, does not require any provision. Mercator Lines: A subsidiary of the company acquired a panamax and a post panamax vessels. Another subsidiary contracted to sell jack-up rig for scheduled delivery in March 2011. SpiceJet: Unaccrued interest of Rs 7.4 crore on inter-corporate deposit of Rs 5 crore under litigation at the Bombay High Court (HC) since November 2001. The auditors have qualified on this matter in their limited review report. Had the company accrued for outstanding interest, net profit reported would have been lower by Rs 5.9 crore and accumulated loss would be higher for the December 2010 quarter. The management believes that no interest needs to be accrued at this point in time on account of its defence in the court proceedings. During 2010-2011 up to the half year ended 30 September 2010, allotted equity
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sign changes resulting into change in scope of work, amount withheld by customers, capitalisation of expenditure on clinical trials for registration of products in the US and Europe, excess managerial remuneration, income tax related matters under dispute, infrastructure development charges which are under litigation, short amortisation of the build-operate-transfer (BOT) rights, and excise demand. In certain cases, FCCBs have seen conversion of bonds into equities, while a company has also seen redemption of bonds, resulting in loss. In one case, auditors have pointed the accounting treatment: the company has treated gain on conversion of bonds into equity shares as OI instead of crediting it to the securities premium account. In another interesting case, two firms have not provided for premium on redemption of outstanding FCCBs. The company has treated it as contingent liability as conversion is dependent on future events. The auditors have commented on this in their limited review report. Similarly, a few companies have not accounted for premium payable on redemption. One would be accounting for premium payable, if any, through the securities premium account, which will shield its profit and loss (P&L) account. However, in many cases, auditors have not made any adverse comments. In January 2011, the Reserve Bank of India (RBI) came out with a notification instructing non-banking financial companies (NBFCs) to make a provision of 0.25% on standard assets. Accordingly, NBFCs have made provision for the nine months in the quarter ended December 2010. There were three such firms doing this. One of them has treated this provision as exceptional item. Liabilities and provisioning for retirement benefits like gratuity and pension and leave
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shares at a price of Rs 25 on conversion of 693 FCCBs of US$ 100,000 each. The difference between FCCB liability restated until date of conversion in accordance with AS11 and net gain of Rs 5.3 crore on conversion price of Rs 25, as per the FCCB offer document, recorded as OI. The auditors had qualified their limited review report for the quarter ended September 2010 as such gain should have been recorded as adjustment against the balance standing to the credit of the securities premium account. The company adjusted the amount to the securities premium account and debited the foreign exchange fluctuation by the Rs 5.3 crore during the December 2010 quarter. Tilaknagar Industries: Acquired 100% stake in Kesarval Springs Distillers Pvt Ltd. Has franchisee arrangements in some states. Turnover of such arrangements Rs 214 crore (Rs 152.8 crore for the previous year) during the December 2010 quarter and Rs 602.1 crore (Rs 362.3 crore for the previous year) during the nine months ended December 2010 not treated as sales. However, surplus generated out of these arrangements included in sales. Thus, total sales of the brand were Rs 353 crore (Rs 258.9 crore) during the quarter and Rs 947.5 crore (Rs 666.4 crore) during the nine months. Supreme Petrochem: Capital expenditure schemes for cup-grade expandable polystyrene 20,400 tonnes per annum (tpa), normal EPS (24,000 tpa) and captive gas-based power plant (3,500 KVA) at Nogothane, Maharashtra, stated for completion by April 2011 as per schedule. Torrent Pharmaceuticals: Torrent Pharma Japan Co, a wholly-owned subsidiary, wound up in October 2010. The entity had not commenced commercial activity. Invested Rs 18 lakh in the equity shares of wholly-owned subsidiary Torrent Pharma SRL, Romania, and Rs 73 lakh in the equity shares of wholly-owned subsidiary Torrent Pharma (UK), United Kingdom. Federal Bank: Net liability arising out of the second option for pension estimated at 158.7 crore. This liability is proposed to be amortised over five years subject to the approval of the regulator. Pending approval, proportionate liability of Rs 8.5 crore (Rs 24.5 crore for the nine months) provided for the quarter and the balance liability of Rs 134.2 crore carried forward. Bajaj Finance: Continues to strengthen its provisioning norms beyond the RBI regulations by accelerating provisioning to an early
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Oriental Bank of Commerce: For the second pension option, holds ad-hoc provision of Rs 356.8 crore pending final actuarial valuation and receipt of guidelines from the competent authority. Post amendment in the Gratuity Act, 1972, provided Rs 150 crore including Rs 50 crore for the December 2010 quarter. GIC Housing Finance: Profit on sale of long-term investments consists of profit on sale of equity shares of LIC Mutual Fund Asset Management Company and LIC Mutual Fund Trustee Company Pvt Ltd. Additional provision for contingencies of Rs 40 crore included additional voluntary provision and provision required for newly introduced NHB circular of December 2010 for housing loans offered under the differential rate of interest schemes. Aurobindo Pharma: Foreign exchange gain or loss represented exchange differences arising on all foreign currency transactions. This included gain of Rs 3.2 crore on restatement of FCCBs. In their limited review report, auditors have commented on non-provision of premium on redemption of outstanding US$ 139.2 million zero-coupon FCCBs. As per the management, it is contingent in nature as determination and crystallisation of liability are dependent on the outcome of uncertain future events not within the control of the company. Incorporated new stepdown subsidiaries Aurobindo Pharma (Romania), Aurobmdo Pharma (Poland), and Aurobindo Pharma. SIAAurobindo Baltics, Latvia, a stepdown subsidiary, liquidated on 26 November 2010. The group sold its entire stake in Cephazone Pharma LLC, a joint venture of one of its overseas subsidiaries in the US. Also, entered into a definitive agreement to divest 80.5% stake in one of the 100% subsidiaries, Aurobindo Datong Bio Pharma Co Ltd, China, from 30 November 2010. Thus, the balance stake of 19.5% in Aurobindo Datong Bio will be strategic to ensure uninterrupted supply of raw materials at competitive prices. The impact of these two arrangements has been disclosed as Exceptional item. Natco Pharma: Following the comments made by the auditors on non-accounting of minimum alternative tax credit of Rs 3.5 crore and Rs 9.9 crore for the quarter and nine months ended December 2010, respectively, will review the position at the end of 2010-11. Sales were net of exchange fluctuation gain of Rs 27.7 lakh for the quarter.
stage of delinquencies based on past experience and emerging trends. Consequently, additional estimated provision aggregated to Rs 2.9 crore for the quarter and Rs 38.7 crore for the nine months, respectively. Jindal Poly Films: Not opted for amended AS-11. The firm continued to adjust profit or loss due to exchange difference on long-term foreign currency loans taken for fixed assets in the P&L account as per AS-11 and recorded as exceptional items. A gain of Rs 98 lakh arising from exchange difference on outstanding longterm foreign currency loans provided. Two wholly-owned subsidiary companies Jindal Metal and Mining and Jindal Poly Films Investment were incorporated. Further, one subsidiary in Mozambique, Jindal Resources (Mozambique), was also incorporated. The board in November 2010 approved investment of up to Rs 660 crore in the equity shares of Jindal India Powertech at par (Rs 10), which is the holding company of Jindal India Thermal Power. Jindal India Powertech is developing a 1,800-MW thermal power project in Orissa with an investment of over Rs 9000 crore. After the proposed investment, the company will hold a stake of 73.7% in Jindal India Powertech. LIC Housing Finance: As per the National Housing Bank clarification on provisioning in December 2010, created provision of Rs 234.9 crore on loans disbursed under fixed-cum-floating interest rate over time after utilising excess provision of Rs 99.9 crore. This resulted in operating profit being lower by Rs 234.9 crore for the December 2010 quarter. OI included profit of Rs 136.6 crore on sale of equity shares of LIC Mututal Fund Asset Management Company and LIC Mututal Fund Trustee Company Pvt Ltd to Nomura Asset Management Strategic Investment Pte Ltd.
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Prism Cement: In December 2010, resumed production of clinker at Unit-II at Satna in Madhya Pradesh, which was temporarily suspended due to accident in the blending silo. Financial Technologies (India): As part of its core business strategy, promotes and invests in new ventures that utilise its technological capabilities and domain expertise creating world-class enterprises. Investment in each venture is assessed for its risks and returns after the ventures start ramping up operations in about two to four years. As part of its non-linear business model, the company will continue to unlock value by broadening investor base of its ventures. Investments aggregating to Rs 958.5 crore and debts and other recoverable aggregating to Rs 104.9 crore in certain subsidiaries and a joint venture company, which presently have accumulated losses but are expected to recover and have their values unlocked in near future as they are already at various stages of executing business plans and operations. Thus, provision for other than temporary diminution of Rs 56.9 crore made during the earlier year considered to be adequate. OI consisted of foreign exchange gain Rs 3 crore, profit on sale of investments Rs 44.2 crore, and dividend income Rs 7.8 crore. Has cash and bank balances of Rs 114.9 crore and investment in mutual funds of Rs 959 crore. Thermax: Through its wholly-owned subsidiary Thermax Denmark ApS acquired 100% stake in Danstoker A/S, Denmark, and Ejendomsanpartsselskabet Industrivej Nord, Denmark, for Rs 129.6 crore. In turn, Danstoker A/S has wholly-owned subsidiaries Omnical Kessel & Apparatebau GmbH, Germany, and Danstoker, UK. As a result of these acquisitions, the company owns boiler manufacturing facilities in Denmark and Germany. Chromatic India: The management is of the opinion that there is no impairment loss for its factory at Dombivli near Mumbai. Corporation Bank: Provision for estimated liability on account of pension option arising out of the ninth bipartite settlement made at Rs 55 crore on a provisional basis pending guidelines. UCO Bank: Based on estimation, Rs 148.5 crore provided during the December 2010 quarter and Rs 371.5 crore for the nine months on account of employee benefits such as pension, gratuity, leave encashment, leave travel concession, and sick leave pending necessary guidelines.
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sequent to wage revision, ad-hoc provision of Rs 225 crore and Rs 390.7 crore made for the quarter and nine months, respectively, towards pension liabilities. Bank of Maharashtra: For liability towards retirement benefits of pension, gratuity and leave encashment, an estimated provision made in a phased manner and, accordingly, Rs 45 crore provided for in the December 2010 quarter in addition to Rs 60.4 crore provided up to the half year ended September 2010. Changed the basis of provisioning for secured sub-standard assets from 10% to 15% during the quarter ended September 2010. Due to this, net profit for the nine months lower by Rs 20.38 crore. Elder Pharmaceuticals: Exceptional item of Rs 1.2 crore for exchange loss on quarterly instalment of external commercial borrowing. Punjab & Sind Bank: Post amendment of the Gratuity Act. 1972, provided Rs 5.7 crore for the December 2010 quarter and Rs 17.3 crore for the nine months ended December 2010 pending approval from the regulatory authority for amortisation of total liability amounting to Rs 115.6 crore, as per actuarial valuation, over five years. Further, Rs 50 crore provided on ad-hoc basis for pension liability. Maharashtra Elektrosmelt: Employee cost increased due to additional provision of Rs 72.6 lakh for the quarter and Rs 4 crore for the nine months for employee-related benefit compared with the reversal of estimated provision for salaries and wages revision of Rs 15.3 crore in the corresponding period of the previous year (Rs 9.9 crore for the quarter). A refund of Rs 10.3 crore received from the Maharashtra State Electricity Distribution Co during the period ended December 2010 (Rs 10.1 crore for the previous period), as per the Maharashtra Electricity Regulatory Commission order to high-tension consumers shown as, Exceptional item. Andhra Bank: Employee cost included Rs 157.5 crore made on ad-hoc basis for new pension option pending crystallisation of liability and Rs 52.5 crore towards gratuity liability consequent to enhancement of eligibility to Rs 10 lakh for the period ended December 2010. State Bank of Mysore: To achieve the RBI stipulated provisioning coverage ratio of 70%, revised accounting policy of NPA provisioning for the quarter ended June 2010, resulting in additional provision of Rs 92.1
Provision included Rs 52.1 crore for the quarter and Rs l24.7 crore for the nine months towards second pension option. State Bank of Travancore: The matter of amortisation of liability towards gratuity and pension arising on account of wage revision, another option for pension, and enhancement of the limit of gratuity taken up with the appropriate authority. In the interim, provision of Rs 93.9 crore made. Dhanlaxmi Bank: As per the Agricultural Debt Waiver and Debt Relief Scheme, received Rs 3.1 crore from the RBI on account of loans to small and marginal farmers out of eligible Rs 4.3 crore. The balance amount of Rs 1.2 crore showed as receivables and classified under, Advances. Dena Bank: Following the exercise of the second option for pension arising out of the ninth bipartite settlement and amendment to the Payment of Gratuity Act, 1972, estimated the liability pending final actuarial valuation. Considering amortisation of the liability over five years commencing from 2010-11, made an ad-hoc provision of Rs 70 crore during the December 2010 quarter. Central Bank of India: Consequent to change in rates of provision for non-performing assets (NPAs), NPA provision increased by Rs 130.2 crore during the nine months ended December 2010. Profit after tax lower by Rs 86.9 crore for the nine months. Pending actuarial valuation, an ad-hoc provision of Rs 30 crore and Rs 10 crore made for gratuity and leave encashment, respectively, for the December 2010 quarter. Gratuity and leave encashment stood at Rs 65 crore and Rs 34 crore, respectively, for the nine months. Pending actuarial valuation and ascertainment of impact on retirement benefits con-
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crore. Discontinued the policy of additional provisioning since the half year ended September 2010 and reverted to provisioning, as per the RBI norms. Also holds floating provision of Rs 84.4 crore over and above the provision amount required as per the RBI guidelines on income recognition, asset classification and provisioning on advances. IVRCL Infrastructures & Projects: The results for the nine months included credits of Rs 40 crore relating to the earlier years and accounted during the first quarter ended June 2010. FCCBs of US$ 7.6 million (Rs 34.1 crore) were redeemed and together with applicable premium aggregated to an outflow of Rs 48.7 crore during the quarter. Purchased equity shares of Alkor Petroo and IVRCL Building Products from its subsidiary, IVRCL Assets & Holdings, making them direct subsidiaries of the company during the quarter. Indian Overseas Bank: Provision for liability towards employee benefits (pension, gratuity, leave encashment) estimated as per revised AS-15 and apportioned on proportionate basis. Rs 22.5 crore charged to the P&L account for transitional liability for the quarter. The balance of unrecognised transitional liability stood at Rs 110.5 crore end December 2010. Pending actuarial valuation, pension liability estimated and provision of Rs 108 crore made for the quarter and Rs 324 crore for the nine months. Pension liability arising on account of second option proposed to be amortised over a period not exceeding three years. In 2009-10, took over specific assets and liabilities of a bank with the approval of the RBI. The deficit, representing excess of liabilities over assets taken over amounting to Rs 246.5 crore, has to be absorbed over three years, as permitted by the RBI. Absorbed Rs 82.1 crore in the June 2010 quarter and the balance deficit of Rs 82.1 crore to be absorbed before 31 March 2012. As per the auditors comment in their review report, total deficit should have been written off. State Bank of Bikaner and Jaipur: An estimated liability of Rs 622 crore determined by the actuary for retirement benefits arising on account of wage settlement on pension and gratuity and also on account of second option of pension and increase in the upper limit of gratuity. The liability would be amortised over three years, commencing from 2010-11. Provision of Rs 51.8 crore for the quarter and
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and the second option for pension estimated at Rs 147.3 crore. This would be amortised over three years commencing from FY 201011. Rs 12.2 crore charged to the P&L account during the quarter. Auditors have commented on the issue. Zydus Wellness: Invested Rs 30.5 crore in capital of partnership firm Zydus Wellness, Sikkim. Phoenix Mills: Butula Farms Lands Pvt Ltd became a subsidiary during the quarter. Emami: Emami Overseas FZE, UAE, and Pharma Derm SAE Co, Egypt, became subsidiary and stepdown subsidiary, respectively, of Emami International FZE during the December 2010 quarter. Shriram City Union Finance: The RBI issued notification in January 2011 asking non-banking financial companies (NBFCs) to make a provision of 0.25% on standard assets with immediate effect Accordingly, made first-time provision of Rs16.1 crore including provision of Rs 1.7 crore on increase in standard assets during the quarter. REI Agro: As per the order of the HC, adjusted in the securities premium account Rs 4.4 crore for deferred tax assets, computed as per AS-22. Welspun Corp: As per the shares purchase agreement entered in May 2010, acquired through its subsidiary 50 01% shares in pipe and coating joint venture (JV) companies Welspun Middle East Pipes Company LLC and Welspun Middle East Pipes Coating Company LLC formed in Saudi Arabia with investment of US$ 58.3 million by way of US$ 14.6 million as equity and US$ 43.7 million as debt during the December 2010 quarter. The JV companies acquired pipe manufacturing and coating assets at Dammam, Saudi Arabia. Wockhardt: Outstanding liabilities restructured under the corporate debt restructuring scheme. For unilaterally terminated contracts pertaining to crystallised derivatives and hedging liabilities are disputed amount payable presently but not ascertainable and, hence, not provided. Exceptional items for the quarter included amount received on release of escrow for divestment of the animal health business, receipt of claim of insurance, reversal of excess provision made on account of settlement of loan and disputed derivatives liabilities, and for loss of assets. TVS Motor Company: As per amended AS-11, difference in the foreign exchange rates for ECB adjusted to the cost of capital
Rs 155.5 crore for the nine months ended December 2010 created. Vijaya Bank: Provision for the second pension option and gratuity on account of enhancement in ceiling based on actuarial valuation amortised over five years pending final decision. Accordingly, Rs 95.3 crore provided in the December quarter. Indian Bank: Rs 23 crore charged to the P&L account for transitional liability on proportionate basis for the quarter, as per revised AS-15. Remaining unrecognised transitional liability is Rs 115 crore. The proportionate sum of Rs 8.2 crore for total additional gratuity fund requirement of Rs 164 crore, as per actuarial valuation arising on account of amendments to the Payment of Gratuity Act, 1972, provided during the quarter pending approval for amortisation over five years. The proportionate sum of Rs14 crore for estimated total additional pension (second option) liability of Rs 280 crore provided during the quarter pending receipt of approval for amortisation over five years. NPAs of Rs 347.4 crore assigned to asset reconstruction companies. In line with the guidelines of the RBI, surplus of Rs 46.1 crore arising out of this sale not recognised in the P&L account. Geojit BNP Paribas Financial Services: Profit after tax of Rs 45.7 crore for the nine months included dividend of Rs 17 crore (Rs 10 crore for the previous period) received from a wholly-owned subsidiary. Manappuram General Finance & Leasing: Made provision of Rs 12.5 crore, being 0.25% of standard assets, as per the notification issued by the RBI in January 2011. South Indian Bank: The liability for retirement benefits of pension and gratuity
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assets acquired through such loans. Exchange difference for ECB other than relating to acquisition of capital assets adjusted to the foreign currency monetary item translation difference account. Invested Rs 28.4 crore in preference shares of TVS Motor Services, Chennai, during the December 2010 quarter. Aptech: Approval of the Central government pending for remuneration of Rs 46.8 lakh paid in excess of limits prescribed under the Companies Act, 1956, to managing director in 2009-10. Voluntarily closed its operations in Aptech Manpower Services from 31 December 2010. National Fertilizer: In the process of offering an alternative optional employees social rehabilitation scheme in place of the existing social security scheme from 1 January 2010. Differential impact of actual valuation, if any, would be known after receipt of response from employees and provided at the year end. SJVN: Pending final determination of tariff by the Central Electricity Regulatory Commission, sales for the quarter provisionally recognised. Pending claims of Nathpa Jhakri Joint Venture on Nathpa Jhakri Hydro Power Station settled during the December 2010 quarter, resulting in additional capitalisation of Rs 54.8 crore to fixed assets and provision for depreciation of Rs 12 crore for earlier years. Interest expenditure for the December 2010 quarter included provision of Rs 19.4 crore on account of settlement of pending and additional claims of contractors. Pending implementation of wage revision of employees, provision of Rs 2.8 crore made for the quarter on reasonable estimate basis. Hexaware Technologies: Exceptional items included profit on sale of surplus assets amounting to Rs 63.6 crore. Entered into a large IT services contract of US$ 110 million over five years during the quarter ending June 2010. Contract includes absorbing certain identified employees of the customer along with related obligation. Accordingly accounted for such obligations, amounting to Rs 41.2 crore based on the crystallised restructuring plan, during the year. This has been booked under Exceptional items. Tamil Nadu Newsprint & Papers: Entered into forward contracts to hedge future imports and future exports. The marked-tomarket (MTM) notional gain of Rs 4.7 crore on such contracts outstanding recognised in
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by the customer on delay in execution is attributable to the customer. The management, based on experts inputs, is confident of recovery of claim exceeding the recognised amount, which it would pursue once the project is fully executed and is also confident of waiver of liquidated damages. The auditors have commented on the accounts for the quarter ended December 2010 and for 2009-10 regarding deductions made and amount withheld aggregating to Rs 58.8 crore by some customers and also work-in-progress inventory of Rs 3.1 crore. The management is taking appropriate steps for recovery. Panacea Biotec: Launched new products, Lenomust capsules (multiple myloma for blood cancer) under its special business unit (SBU), OncoTrust; Renhold tablets (protein for dialysis patients) under its SBU on nephrology; Exeroz (reduction of cholestrol) under its SBU, Dia Alpha; and Fiberfos Power and Gush Power 90gm (constipation) under its SBUs, Growcare and Procare, respectively. Its wholly-owned subsidiary, Best On Health, acquired 100% stake in Best on Health Foods by investing Rs 5 lakh. Auditors have commented on the non-provision of proportionate premium on redemption of convertible bonds in 2009-10 (outstanding US$ 38.8 million). As per the management, bonds are redeemable only if there is no conversion, the likelihood of which cannot be ascertained presently. Hence, premium is contingent in nature and disclosed as contingent liability in the earlier years. Further, proportionate premium, amounting to Rs 4.2 crore, not been provided during the quarter ended December 2010. The total non-provided redemption premium amounted to Rs 68.5 crore for the period up to 31 December 2010. In the eventuality of bonds not getting converted, premium on redemption would be adjusted out of the securities premium account and would not have any consequential impact on the P&L account. On capitalisation of expenditure on clinical trials for registration of products in the US and Europe, the company believes these products would be commercially viable and there is no uncertainty that may lead to not securing registration. Rs 35.9-lakh expenditure capitalised during the quarter ended December 2010 on similar grounds. Total amount of capitalisation stood at Rs 50.2 crore up to 31 December 2010. Auditors have commented on this accounting treatment.
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the hedge reserve account, as per AS-30. Punj Lloyd: A subsidiary, PL Engineering, acquired 100% stake in Punj Lloyd Engineering Pte Ltd, Singapore, in October 2010. Increased its stake in Dayim Punj Lloyd Construction Contracting Company from 49% to 51%. Awholly-owned subsidiary, Punj Lioyd Pte Ltd., Singapore, acquired 100 % subsidiary company, Punj Lloyd Infrastructure Pte Ltd. Awholly-owned subsidiary, Punj Lloyd Pte Ltd, Singapore, incorporated a 100 % subsidiary company, PLI Vendtures, Mauritius. A stepdown subsidiary, Sembawang Engineers and Constructiors Pte Ltd, incorporated a subsidiary company, Sembawang Tianjin Pte Ltd., Singapore. A stepdown subsidiary, Sembawang Engineers and Constructiors Pte Ltd, incorporated a subsidiary company, Sembawang (Tianjin) Investment Management Co. China. A wholly-owned stepdown subsidiary, Punj Lloyd Infrastructure, incorporated a 100 % subsidiary company, Punj Lloyd Solar Power. Incorporated a 51% subsidiary company, PLI Ventures Advisory Services Pvt Ltd, during the quarter A wholly-owned subsidiary, Punj Lloyd Pte Ltd, Singapore, divested its stake in a subsidiary, Techodyne International, from 2 February 2011. The auditors have qualified their report for the quarter ended December 2010 and for 2009-10 regarding accounting of claim of Rs 243 crore on a contract. Based on the managements assessment, the cost over-run arising due to design changes and consequent changes in the scope of work on a project and also non-accounting of liquidated damages amounting to Rs 65.4 crore deducted
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Approval for excess managerial remuneration of Rs 1.46 crore paid for FY 2008-09 received, while approval for Rs 2.3 crore awaited. Auditors have commented on this matter in their report for the FY 2009-10. Marico: As a matter of abundant caution and financial prudence, made a provision of Rs 29.3 crore during FY 2009-10 for 75% of possible excise obligation that may arise in the event of unfavourable outcome in the dispute about coconut oil packed in container size up to 200 ml and cleared after 3 June 2009. This is being contested by the company. Based on legal opinion obtained, probability of success in the matter is more likely. In terms of AS-29 on provisions, contingent liability and contingent assets, possible obligation could be in the nature of contingent liabilities, which need not be provided for. Has continued its stand and, accordingly, made provision of Rs 9.5 crore (Rs 11 crore for the previous period) and Rs 26.6 crore (Rs 28.2 crore for the previous period) for the quarter and the nine months ended December 2010, respectively, which is included in Other expenditure. If liability is treated as contingent liability, profit before tax for the quarter and nine months would have been higher by the same amounts. Auditors have qualified their audit report for 2009-10 and limited review reports for the quarters ended 30 June 2010, 30 September 2010 and 31 December 2010. According to the auditors, this treatment is not as per AS-29. Redington India: Redington International Mauritiuss subsidiary Redington International (Holdings), Cayman Islands, incorporated Redington Turkey Holdings SARL, Luxembourg, as a wholly-owned subsidiary, which, in turn, acquired 49.4% equity in Arena Bilgisayar, Istanbul, in November 2010, with full control over the composition of the board of directors. Invested Rs 2 crore in the equity capital of its wholly-owned subsidiary, Nook Micro Distribution, and a further investment of Rs 1.9 crore was made in January 2011. A stepdown subsidiary, Redington Angola ADA, incorporated during the December 2010 quarter. Icra: Current investments valued at lower of cost and fair market value and reversal in diminution in carrying value of the investments credited to the P&L account. Rajesh Exports: Order book position stood at Rs 5465 crore end December 2010. Launched seven more Shubh Jewellers stores in Banglore under the gold revolu76
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tory approvals, changed the conversion price of the phase I bonds from Rs 359.68 to Rs 97.26 per equity share and for phase II bonds from Rs 371.55 to Rs 97.26 per equity share. The revised floor price of phase I and phase II bonds is Rs 74.025 per equity share. The fixed exchange rate was changed to US$ 1=Rs 44.6 from US$ 1=Rs 40.83 for phase I bonds and US$ 1 = Rs 39.87 for phase II bonds. Incurred Rs 37.28 crore as consent fee to bondholders and other cost, which is disclosed under, Exceptional items for the nine months. In the process of seeking regulatory approval, for implementing a scheme of arrangement and restructuring. The scheme includes de-merger and transfer of the power generation division and the project division from wholly-owned subsidiaries to other two wholly-owned subsidiaries. Subsequently, both wholly-owned subsidiaries will be amalgamated with Suzlon Energy. The appointed date fixed for the purpose was 1 April 2010. Jaiprakash Power Ventures: The results included the performance of the 300-MW Baspa II Project and 400-MW Vishnuprayag Project. Both the Baspa-ll and Vishnuprayag hydro electric projects recorded the highest levels of power generation since commencement of commercial operations, given the hydrology and high level of plant availability during the nine months. The company and its subsidiaries and associates are implementing a 13,020-MW (thermal 8,100 MW and hydro 4,920 MW) additional power-generation capacity. Have raised resources by securitisation of receivables of operating projects and also other financial assistance. This has resulted in additional interest cost, leading to relatively lower increase in net profit. Jaypee Karcham Hydro Corporation, an associate company implementing the 1,000MW Karcham Wangtoo hydro electric project, became a subsidiary during the December 2010 quarter. The project achieved significant milestone when it closed the diversion tunnel and commenced filling of the water conductor system. The Karcham Wangtoo project was scheduled to commence commercial operation of its first unit in March 2011. Subsidiary Sangam Power Generation Company has since executed the boiler turbine and generator contracts for three units of 660 MW each for its super critical thermal power project at Karchana, Allahabad, Uttar Pradesh.
tion. The company has emerged as the largest retail jeweller in Karnataka. Also launched a jewellary service center in Banglore, under the brand name, Shubh Service Center. R&D division developed several new designs and processes. Prestige Estates Projects: Invested in equity shares of various companies including Prestigae Bidadi Holding Pvt Ltd, Valdel xTent Outsourcing Solution Pvt Ltd, and Vijaya Production Pvt Ltd, during the quarter MOIL: Due to the change in accounting policy for valuation of slag from 1 April 2010, profit after tax reduced by Rs 68 lakh and Rs 3.9 crore, respectively, for the quarter and nine months. Suzlon Energy: Indian Wind Energy Association, of which Suzlon is a member, has filed a civil appeal in the Supreme Court against an order of the Appellate Tribunal for Electricity to levy infrastructure development charges (IDC) proposed by the Tamil Nadu State Electricity Board. The auditors have commented about non-provision of the IDC charges aggregating for Rs 5965 crore on 31 December 2010. Not provided for proportionate premium on redemption of convertible bonds as this is contingent in nature. The proportionate premium was around Rs 527.3 crore on 31 December 2010. The auditors have commented on this matter in their limited review report for the quarter. The company has securities premium of Rs 5306 crore, which is adequate to cover the cost of proportionate premium in case the contingency materialises. In April 2010, convened meetings of bondholders of each of the series, who approved the respective resolutions put to them. Accordingly, post receipt of regula-
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Foreign exchange fluctuation on outstanding foreign currency loans accounted for as per amended AS-11. Foreign exchange fluctuation for the Baspa II Project and Vishnuprayag Project are reimbursable in the tariff. Gateway Distriparks: Based on opinions obtained, the management has taken a view that the provisions of Section 80-IA(4)(l) of the Income Tax (IT) Act, 1961, have been fulfilled and the company is eligible for tax holiday under the IT Act for container freight station activities. Consequently, income tax liability has been determined under minimum alternate tax (MAT). Has taken MAT credit of Rs 2.9 crore during the quarter (Rs 6.5 crore for the nine months). The credit can be set off against future tax liability. Accordingly, Rs 25.5 crore (including Rs 19 crore for 2009-10) treated as loans and advances on 31 December 2010. The deputy commissioner of income tax issued an order for the assessment year 20082009 (financial year 2007-08), disallowing claim of deduction under Section 80-IA (4) (l) of the IT Act and issued notice demanding recovery of additional income tax and interest aggregating to Rs 26.9 crore and initiated proceedings to levy penalty during the quarter. The company is in the process of filing appeal before the commissioner of income tax (appeals). Based on tax consultants opinion, the management is of the opinion that the company is entitled to deduction and, hence, no provision for demand made. The company and its subsidiary company, Gateway Rail Freight (GRFL), are involved in an arbitration proceeding with Container Corporation of India (Concor) for agreements entered into for operation of container trains from the inland container depot and rail siding of the company at Garhi Harsaru, Gurgaon. Concor has raised claims on the company and GRFL on various issues. Based on legal opinion, the management has taken the view that these claims are at a preliminary stage and the question of maintainability of the alleged disputes is yet to be determined and is not sustainable. Pending arbitration, parties are maintaining status quo. Jyothy Laboratories: The board took note of expansion plan of its subsidiary, Jyothy Fabricare Services, and granted in-principle approval to raise up to Rs 150 crore through equity and or debt through private placement. Biocon: Biocon SA entered into a strategic agreement with Pfizer, Ireland, for worldwide
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lower by Rs 3.4 crore for the quarter and lower by Rs 1.1 crore for the nine months. KPIT Cummins Infosystems: Designated outstanding forward exchange contracts for certain firm commitments and forecast transactions as cash flow hedges as per AS-30. Changes in fair value of forward exchange contracts, if effective, recognised directly in reserves and ineffective portion recognised immediately in the P&L account. OI included foreign exchange gain of Rs 2.7 lakh and loss of Rs 5.5 crore, respectively, for the quarter and nine months (loss of Rs 3 crore and Rs 12.3 crore for the previous periods, respectively). Mahindra & Mahindra Financial Services: As per the RBI notification issued in January 2011 instructing NBFCs to make provision of 0.25% on standards assets with immediate effect, made a firsttime provision of Rs 28.4 crore as Exceptional item for the nine months. This included provision of Rs 2.8 crore for the December 2010 quarter. Delta Corp: Not earned income from lease rental and real estate consultancy, which were there in the quarter ended December 2009, amounted to Rs 5.9 crore and Rs 9 crore, respectively, during the quarter ended December 2010. Incorporated two wholly-owned subsidiary companies and acquired two stepdown subsidiary companies for Rs 1.1 crore during the December 2010 quarter. Tech Mahindra: A customer restructured long-term contracts with the company from 1 April 2009 involving changes in commercial including rate reduction and other agreed contract terms. As per the amended contracts, the customer has paid restructuring fees of Rs 968.1 crore. The services under the restructured contracts would continue to be rendered over the life of the contract. The restructuring fees received would be amortised and recognised as revenue over term of the contract on a straightline basis. Rs 150.3 crore recognised as revenue for the nine months ended December 2010 and the balance of Rs 617.3 crore carried forward and disclosed as deferred revenue. Hindustan Media Ventures: Hindustan, a Hindi daily, was launched in Gorakhpur in Uttar Pradesh from the companys new printing facility during the quarter. Acquired the Hindi business undertaking from its holding company, HT Media, from 1 December 2009 and, hence, results are not comparable year on year.
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commercialisation of biosimilar insulin products during the quarter. Biocon SA will be responsible for the clinical development and supply of these biosimilar insulin products. Television Eighteen India: Has certain long-term investment of Rs 784 crore including quoted equity shares of Rs 274.6 crore. The market value of quoted equity shares stood at Rs 65.3 crore on 31 December 2010. As per the management, considering the long-term strategic involvement and proposed restructuring, no provision considered necessary other than temporary diminution in value or these investments. Godrej Properties: OI included Rs 15 crore as part dilution of equity stake in Godrej Buildwell Pvt Ltd to India Realty Excellence Fund and others for Rs 5 crore and Godrej Sea View Properties Pvt Ltd to HDFC Porfolio Management Services for Rs 10 crore. Century Plyboards (India): OI included dividend from a subsidiary amounting to Rs 5.9 crore for the nine months ended December 2010 as against Rs 22.1 crore during the previous period. Tulip Telecom: Formed a wholly-owned subsidiary company, Tulip Data Center Services Pvt Ltd, in Bangalore for the proposed expansion of its business operation in enterprise data services. Opted for amended AS-11. Added Rs 18.9 crore to fixed assets on account of fluctuation in rate of foreign currency long-term assets and liabilities by crediting Rs 7.5 crore to the general reserve for foreign exchange loss from 7 December 2006 to 31 March 2010 and Rs 11.3 crore of foreign exchange loss between 1 April 2010 to 30 June 2010 as on 30 June 2010. Had the option not been exercised, net profit would have been
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Noida Toll Bridge Company: Has legal dispute with the municipal corporation of Delhi over payment of monthly license fees on outdoor advertisements. So far, has paid Rs 1 crore to corporation in compliance with the court order and booked it under, Advance till the disposal of pending case. Info Edge (India): Is still to utilise fully funds raised through the initial public offerings (IPO) in November 2006. Follows intrinsic value method for employee stock option-based compensation. Had the fair value method been used for options vested during the nine months and quarter ended December 2010, profit after tax for the period and quarter would have been lower by Rs 5.6 crore and Rs 1.8 crore, respectively (Rs 4 crore and Rs 2.2, crore respectively, for the previous periods). Titagarh Wagons: Implemented a new enterprise resource planning system during the earlier quarter, requiring a change in the method of valuation of raw materials and components and stores and spares parts inventories from the first-in-first-out to weighted average basis. Had the company continued to use the earlier method, charge to the P&L account for the quarter and nine months would have been lower by Rs 33.3 lakh and higher by Rs 52.4 lakh, respectively. Shoppers Stop: On account of termination of franchisee agreement with Crossword Bookstores (CBL), a wholly-owned subsidiary, operations of Crossword have been handed over to CBL at book value from 1 October 2010. Change (increase or decrease) in inventories included transfer of inventory to CBL aggregating to Rs 23.4 crore. Hence, results are not comparable. Triveni Engineering and Industries: The court process for sanction of scheme of arrangement proposing the demerger the steam turbine business of the company to its wholly-owned subsidiary company, Triveni Turbine, from 1 October 2010 is under progress. In January 2011, signed renewal of its licence agreement for 12 years with Lufkin Industries Inc., Lufkin, Texas, US. The new agreement covers manufacture of an extended range of steam turbine gear boxes up to 62 MW, gear boxes for compressors, load gear boxes for gas turbines and gear boxes for mechanical drives (pumps, fans and blowers). Geographical coverage under the agreement also extended. Petronet LNG: Sourced additional 11 million tpa (mtpa) LNG for 2011-12 and 2012-
Investment Strategy
recognised over three years. In the process of streamlining depreciation practices. Not recognised deferred tax assets in view of the substantial losses and no virtual certainty supported by convincing evidence that sufficient future taxable income will be available. Divis Laboratories: Implementing a project for setting up a new unit, the DSN SEZ unit, at Visakhapatnam at an estimated cost of Rs 200 crore. Tata Teleservices (Maharashtra): Adopted amended AS-11 in the last quarter of 2008-09. Adjusted foreign exchange loss of Rs 61 lakh and gain of Rs 5.5 crore for the quarter and nine months ended December 2010 compared with gain of Rs 11.9 crore and Rs 20.8 crore for the quarter and nine months ended December 2009 against carrying value of fixed assets. Deferred tax not recognised in view of the tax holiday enjoyed and on considerations of prudence, as set out in AS-22. Reliance MediaWorks: After the end of the December 2010 quarter, FCCBs were redeemed on 25 January 2011, resulting in a crystallised loss of Rs 14.8 crore. Sterlite Technologies: The Customs, Excise and Service Tax Appellate Tribunal upheld a demand of Rs 188 crore including penalties in pending excise matter during 200506. The auditors have expressed their qualification on the matter. The company is contesting this case and the matter is pending with the Supreme Court. Lanco Infratech: Power generating units of two subsidiaries changed their depreciation policy during the quarter, from writtendown value to the straightline method, with retrospective effect at the rates specified in Schedule XIV of the Companies Act, 1956, on experts technical inputs and to align the depreciation method with other power companies within the group and industry. Consequently, depreciation lower by Rs 88.2 crore for the quarter. Further, charge for the quarter is after adjusting writeback of Rs 160.7 crore for the six months ended September 2010. Also, depreciation aggregating to Rs 141.4 crore for the period up to 31 March 2010 written back and presented as OI. Consequently, net profit higher by Rs 133.1 crore for the quarter and nine months ended December 2010. Entered into a binding agreement to acquire Griffin Coal Mine in Australia during the quarter. The management expects to take control of the mine after completing necessary formalities.
13 and offtake arrangements finalised. The board approved expansion of the Kochi terminal to six mtpa. The work order would be awarded shortly and terminal is expected to be commissioned by the third quarter of 2012-13. Also awarded contracts for construction of additional jolly and associated facilities at Dahej in Gujarat. Expected to be commissioned by the second quarter of 2013-14. Atlanta: The auditors have qualified the results for short amortisation of the BOT rights of the Mumbra bypass road for Rs 9.5 crore and non-provision of MTM loss of Rs 6.7 crore. Based on legal opinion, the company has amortised the BOT right for 24 years, one month and 17 days as against the claim period, which is far in excess. The matter is pending adjunction before the arbitral tribunal. Had the MTM losses been provided and BOT rights amortised based on the revised government notification, net block of the assets would have been lower by Rs 9.5 crore and profit would have been Rs 11.9 crore as against reported profit of Rs 28.2 crore for the period. Operating income from toll collection at the Mumbra bypass road declined by approximately Rs 14.6 crore in the December 2010 quarter. This estimate is based on average toll collection in the earlier period on account of suspension of toll collection for 115 days on account of concretisation of toll road. Other operating income related to writeback of provisions no longer required for projects. Dish TV India: Life of consumer premise equipment (CPE) for depreciation estimated by the management as five years. However, in certain cases, one-time advance contribution towards CPE in the form of rental
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Remuneration of Rs 1.8 crore till year ended March 2010 paid to directors of certain subsidiary companies in excess of the permissible remuneration. Approval from the Central government is pending and no adjustments made in accounts. Jagran Prakashan: Post migration to International Financial Reporting Standards, which is likely over the next three years or so, the company would not be required to amortise title but will need to test it for impairment annually or earlier if there arises a triggering event in the interim period. The company believes that, based on its business projections, no impairment on such review will arise and, accordingly, it has not amortised the value of the title of Rs 17 crore in its interim financial results. This accounting treatment is not in sync with AS26, which requires amortisation of intangible assets over their estimated useful life. Binani Cement: The cement industrys performance adversely affected on account of the substantial drop in cement prices and rising input costs during 2010-11. Various projects in India and China and a new project in Mauritius are progressing as per schedule. IVRCL Assets & Holdings: Incorporated a subsidiary, IVRCL Chandrapur Tollways, during the December 2010 quarter. Sold investments in two of its subsidiaries, Alkor Petroo and IVRCL Building Products. AIA Engineering: The company has acquired 70% equity stake of DCPL Foundries Pvt Ltd, Trichy. A company, Wuxi Weigejia Trade Co, was formed in China during the December 2010 quarter. The new company is a whollyowned subsidiary of Vega Industries (Middle East) FZE, UAE. Vega Industries is a wholly-owned subsidiary of the company. Pipavav Shipyard: As per the revised guidelines for the shipbuilding subsidy issued in March 2009, the company is eligible for subsidy at 30% of contract price for the export order received for vessels for which contracts with customers were signed on or before 14 August 2007. Accordingly, subsidy of Rs 30.6 crore for the quarter (Rs 38.6 crore for the previous period) and Rs 68.9 crore for the nine months ended December 2010 (Rs 84.6 crore for the previous period) recognised as revenue of ships under construction on proportionate completion basis. Work on certain pending equipment and facilities, which were delayed due to various reasons, have substantially been comMay 02 15, 2011 CAPITAL MARKET
Investment Strategy
1,320-MW super critical thermal power project in Orissa. Jai Balaji Industries: The ductile iron pipe plant at Durgapur, with a capacity of 2.40 lakh mtpa, commenced commercial production from 3 November 2010. Fresenius Kabi Oncology: Received Rs 5.79 crore from of disposal of Dabur Pharma (Thailand) Company, a wholly-owned subsidiary, as against investment of Rs 3.11 crore in equity. The difference of Rs 2.68 crore accounted for as Extraordinary income during the December 2010 quarter. Parsvnath Developers: Parsvnath Promoters and Developers Pvt Ltd became a subsidiary. Pursuant to the investment agreement entered in December 2010 with Parsvnath Buildwell Pvt. Ltd (PBPL) and two overseas investors managed by Sun-Apollo, an international real estate equity fund, transferred and assigned its development rights of one of its projects to PBPL. Firstsource Solutions: Sold investment in subsidiary Pipal Research Corporation. The resultant profit of Rs 5.1 crore accounted in OI. HT Media: Provision for impairment related to the partnership for growth business considered as part of operating expenses from 2010-11. Accordingly, impairment provision was Rs nil for the quarter ended December 2010, Rs 4.4 crore for the nine months ended December 2010, and Rs 4 crore for the nine months ended December 2009 and was reclassified from Exceptional items to Operating expenses. Invested in subsidiaries HT Digital Media Holdings (Rs 27.5 crore in compulsorily convertible debentures), HT Burda Media (Rs 11.7 crore as advance against allotment of equity shares) and Firefly e-Ventures (Rs 15 crore as inter corporate deposit). The scheme of arrangement involving demerger of the job portal business of Firefly e-Ventures, a subsidiary, and transfer of the business to the company considered in computing effective annual tax rate, as per AS25. After adjusting available tax losses of the demerged business, tax expense was lower by Rs 4 crore for the quarter and nine months ended December 2010, resulting in credit in tax expenses for the December 2010 quarter. Indiabulls Financial Services: Sold 26% of its stake in Indian Commodity Exchange (ICEL) to Reliance Exchangenext. As a result, stake in ICEL reduced to 14%. Premium on redemption (accrued but not due) of non-convertible debentures of Rs
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pleted and the Goliath cranes are in the process of trial commissioning. Accountedforcontractrevenueandexpenses for offshore vessels, based on proportion of completion of contracts certified by technical experts. Cost estimated for revenue recognised represented reversal of Rs 19 crore for the quarter (Rs nil for the previous period) and provision of Rs 39 crore for the nine months ended December 2010 (Rs nil for the previous period), being provision for proportionate cost to be incurred to allocate profit on the contract to whole of the contract. Gujarat State Petronet: Changed the depreciation rate on gas transmission pipelines from 8.33% straightline method to 4.75% straightline method from 1 April 2010, as per the rates prescribed by the Companies Act, 1956. Difference in depreciation due to revision recognised in the P&L account for the December 2010 quarter. Accordingly, depreciation lower by Rs 75.5 crore for the nine months and by Rs 25 crore for the quarter. Veritas (India): Veritas FZE, a subsidiary, acquired an oil tank terminal in the Hamriyah free zone, Sharjah, UAE, for facilitating storage and distribution of chemicals. JSL Stainless: Major capital equipment for the 0.8-mtpa stainless steel project in Orissa arrived and installed. The project is under advance stage of implementation. Entered into long-term arrangement with JSW Steel for usage of coke oven facility and intends to enhance its capacity from existing 0.425 mtpa to 0.85 mtpa. Exceptional items for the quarter and nine months represented fluctuations on foreign currency assets and liabilities including loans. JSL Energy, a newly incorporated company, signed a memorandum of association with the Orissa government to set up a
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1260 crore issued in July 2010 and Rs 250 crore issued in August 2010, amounting to Rs 64.4 crore, adjusted against the securities premium account. Everest Kanto Cylinder: Raised US$ 35 million by way issue of FCCBs in 2007-08. These FCCBs, due in 2012, are optionally convertible into equity subject to certain conditions, whose impact not determinable at present. The premium payable on exercise of redemption option, if any, would be accounted by way of debit to the securities premium account. Considering the foreign exchange exposure and present volatility in exchange rates, MTM losses on outstanding foreign currency derivatives contracts charged to the P&L account, discontinuing the hedge accounting principles followed up to 31 March 2010. As a result, exchange loss was higher by Rs 47 lakh for the nine months ended December 2010 and gain higher by Rs 55 lakh for the quarter ended December 2010. To consolidate and promote synergy among similar facilities and effective utilisation of manufacturing facilities, the entire activities of the Aurangabad plant to be shifted to a larger unit located at Gandhidham in Gujarat. Consolidated Construction Consortium: Orders on hand stood at Rs 4333.4 crore. Fresh orders received during the third quarter amounted to Rs 311.6 crore. Booked additional Rs 299-crore orders in January 2011. Two wholly-owned fully operational subsidiaries Consolidated Interiors and Noble Consolidated Glazings reported standalone aggregate cumulative turnover of Rs 84.2 crore (Rs 63 crore for the previous period) and profit after tax of Rs 1.9 crore (Rs 1.5 crore for the previous period). CCCL Infrastructure, a subsidiary, awarded a project under the Jawaharlal Nehru National Solar Mission scheme, for the development of a 5-MW solar power plant in the Tutucorin district of Tamil Nadu. Entertainment Network (India): Has a media collaboration arrangement with Bennett, Coleman and Company (BCCL), the ultimate holding company. This arrangement seeks to expand the advertisement market and also helps the company to gain access to certain clients who may not otherwise advertise on FM radio. Revenue from this arrangement were Rs 4.5 crore (Rs 3.4 crore for the previous period) and Rs 11.2 crore (Rs 10.8 crore, for the previous period), respectively, during the quarter and the
Investment Strategy
USA, in India to introduce a version of Zeebos 3G-connected education and entertainment system specifically for the Indian market. Great Offshore: Adopted AS-30 on hedge accounting policy. Accordingly, unrealised exchange gain or loss on revaluation of its foreign currency borrowings designated in the hedge reserve account. Net unrealised exchange gain of Rs 7.4 crore credited to the hedge reserve account. Total realised exchange loss debited to the P&L account amounted to Rs 4.4 crore. The credit balance in the hedge reserve account stood at Rs 2.9 crore on 31 December 2010. Accounted interest receivable of Rs 12.6 crore from its wholly-owned foreign subsidiary, Great Offshore (International), on cost basis. Of this Rs 3.9 crore was for the half year ended September 2010. GVK Power & Infrastructure: Transferred balance of its total investments in GVK Gautami Power to its wholly-owned subsidiary, GVK Energy. With this, completed the creation of a separate energy vertical. GVK Jaipur Expressway Pvt Ltd, a whollyowned subsidiary, amortised toll rights based on actual traffic. Had it continued to use the straightline method as followed earlier, charge to the P&L account, net of tax, would have been higher by Rs 1.4 crore. Adhunik Metaliks: As per the order of HC, net deferred tax liability of Rs 3.2 crore for the quarter and Rs 10.8 crore for the nine month ended December 2010 adjusted against the securities premium account. Prime Focus: Not re-valued FCCBs of US$ 55 million as these are considered non-monetary liability. Had the company revalued those bonds, considering them as a long-term monetary liability, profit would have been lower by Rs 61.5 lakh for the quarter and lower by Rs 2.3 crore for the nine months. The reserves would have been lower by Rs 28.8 crore and the foreign currency monetary item translation difference account would have been Rs 78.9 lakh. Further, had the premium on redemption been provided, securities premium would have been lower by Rs 55.4 crore and the FCCB balance would have been higher by Rs 84.3 crore on 31 December 2010. This is subject matter of qualification in the auditors report for 2008-09, 2009-10 and also in the limited review reports for all the last three quarters. Kingfisher Airlines: Deferred tax asset recognised on account of unabsorbed depreciation and business losses aggregated to Rs 334.1 crore for the nine months. The manMay 02 15, 2011 CAPITAL MARKET
nine months ended 31 December 2010. Subsequently, in view of the uncertainties on timing and quantum of collection, the company has, based on the principles of prudence, created provision for doubtful debts of Rs 3.6 crore for the quarter (Rs 3 crore for the previous period) and Rs 8.6 crore for the nine months (Rs 9.5 crore for the previous period) on sales made through this arrangement. GTL Infrastructure: FCCBs aggregating to US$ 228.3 million, convertible at the option of the bondholders by 22 November 2012, were outstanding end December 2010. If the FCCBs holders do not exercise their option by due date, FCCBs are redeemable at a premium of 40.4064% of the principal amount. In such a scenario, the company will be adjusting the premium to the securities premium account. The pro-rata premium worked out to Rs 259.5 crore on 31 December 2010. Godawari Power & Ispat: Other operating expenditure, depreciation and interest cost substantially increased during the year due to commencement of production of the iron ore pelletisation plant, a backward integration project for the sponge iron plant. The major part of the pellet produced captively consumed for manufacturing of sponge iron, resulting in lower cost of raw materials. Pellet is also sold to other steel plants. Commercial operation in the 20-MW biomass based power plant commenced successfully on 1 November 2010. Awarded a 50-MW solar thermal power project under the Jawaharlal Nehru National Solar Mission. It has decided to set up this plant through a special purpose vehicle, Godawari Green Energy, a 100% subsidiary. Educomp Solutions: In February 2011, the board approved a proposed joint venture between Educomp Solutions and Zeebo Inc,
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agement believes that there is virtual certainty supported by convincing evidence for realising this deferred tax. Adopted the revised exposure draft as per AS-10 on tangible fixed assets, which allows costs on major repairs and maintenance incurred to be amortised over the incremental life of the asset. Extended this treatment to costs incurred on major repairs and maintenance for engines of aircrafts acquired on operating lease. Had the company not adopted this method of accounting, loss before tax and after tax would have been higher by Rs 3.6 crore and Rs 2.4 crore, respectively, for the quarter and the loss before tax and after tax would have been lower by Rs 7 crore and Rs 4.7 crore, respectively, for the nine months. This revised accounting policy has been confirmed by an independent expert. Renegotiated its contract with the Sabre group on 30 September 2010. Pending quantification of the contract, not been given effect to it in this quarter. Executed a master debt recast agreement with its consortium bankers. The salient features include (a) Rs 750.1 crore of loan converted into 7.5% compulsorily convertible preference shares, (b) Rs 553.1 crore of loan converted into 8% cumulative redeemable preference shares redeemable at par after 12 years, (c) repayment of balance loans rescheduled with a moratorium on repayment of principal of two years and step-up repayment over the subsequent seven years, (d) interest on loans of banks for the period July 2010 to March 2011 to be converted into a funded interest term loan repayable in five years with two-year moratorium, (e) interest rate on loans reduced by over 300 basis points, (f) additional fund-based loan facilities of Rs 768.3 crore and non-fund-based facilities of Rs 444.4 crore sanctioned by banks, (g) part of the working capital limit of Rs 297.4 crore converted into working capital term loans, and (h) loans from promoters of Rs 648 crore converted into 7.5% compulsorily convertible preference shares and terms of 6% redeemable preference shares of Rs 97 crore issued to promoters have been varied so that they became 6% compulsorily convertible preference shares. Loans and inter-corporate deposits from certain other lenders aggregating to Rs 709.3 crore converted into optionally convertible debentures. These lenders have confirmed their intention to convert these debentures into equity shares and to act in concert with the promoters.
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Housing Development & Infrastructure: Acquired 69% equity in Lashkaria Construction Pvt Ltd. On 18 November 2010, the office of the company, situated at HDIL Towers, got extensively damaged by fire, which destroyed property and records. In the financial results, exceptional items of Rs 4.5 crore net of insurance claims and salvage represented loss by fire. Motilal Oswal Financial Services: OI included dividend of Rs 13.4 crore received from subsidiary Motilal Oswal Investment Advisors Pvt Ltd during the nine months ended December 2010. Religare Enterprises: Issued 13.66% cumulative redeemable preference shares aggregating to Rs 120 crore to RHC Finance Pvt Ltd. The preference shares are redeemable at a premium not exceeding Rs 150 per share at the end of the five years or at an earlier date. Premium payable on redemption will be charged to the securities premium account. Through Religare Capital Markets, a wholly-owned subsidiary, acquired (a) 50% stake in Bartleet Mallory Stock Brokers Pvt Ltd, an established stock broking entity in Sri Lanka, and (b) 100% stake in institutional broking entities Barnard Jacobs Mellet (UK) Religare Australia Securities Australia Pty Ltd, Religare Capital Markets (Hong Kong), and Religare Capital Markets (Singapore) Pte Ltd. As per the capital protection clause in the Aegon Religare Life Insurance joint venture (JV) agreement, the companys share of net loss of Rs 32.2 crore for the December 2010 quarter and Rs 102.9 crore for 2009-10 shown as recovery of expenses from JV partner and has no impact on consolidated results. Made various investments (equity shares, preference shares and debentures) in subsidiaries and JVs during the quarter and nine months. These included Religare Finvest, Religare Global Asset Management Inc, USA, Religare Housing Development Finance Corporation, Religare Capital Markets International (Mauritius), Religare Housing Development Financial Corporation, Religare Capital Market, Religare Share Broker, Religare Bullion, and Religare Asset Management Company. Investment made in joint ventures included Aegon Religare Life Insurance Company and Religare Macquarie Wealth Management. Transferred equity shares at book value of Rs 97.3 crore of Religare Housing Devel81
Incurred substantial losses and net worth has been eroded. However, considering the improvement in economic sentiment, rationalisation measures, fleet recovery and implementation of debt recast package, the interim financial statements have been prepared on the basis of a going-concern. Allcargo Global Logistics: Reassessed estimated useful life of cranes from 1 January 2010. If it had continued with old estimate of useful life, depreciation and profit before tax would have been Rs 20.4 crore and Rs 27.1 crore, respectively, for the quarter and Rs 64.8 crore and Rs 120.4 crore, respectively, for the year ended December 2010. Hinduja Global Solutions: OI included gain of Rs 2.5 crore for the quarter (loss Rs 2.4 crore for the previous period) on account of fluctuations in foreign exchange. Further, OI included gain of Rs 2.6 crore for the nine months (loss of Rs 6.5 crore for the previous period). Network 18 Media & Investments: Auditors have qualified their report on excess remuneration paid to the managing director. The Central government has partially approved the remuneration paid and the company has requested for reconsideration of the remaining portion. Auditors have qualified their report on non-provision, other than temporary diminution in value, of long-term investments and advances of Rs 400.6 crore. As per the management, in view of long-term involvement of the company with the investee companies, no provision is required. Indiabulls Real Estate: Disposed of two of its wholly-owned subsidiaries and sold one wholly-owned subsidiary to another of its subsidiary. Also invested in two whollyowned subsidiaries.
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Rec. Cur. Price % Sensex Price 10-03-10 Var Var(%)

79 162 75 992 445 237 482 203 2,632 1,130 200 198 171 165 154 110 55 52 50 58
Glodyne Technoserve 25-Mar-09 Engineers India Zydus Wellness Swaraj Engines 13-Mar-09 30-Apr-09 06-Mar-09
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ApnaMoney
opment Finance Corporation to Religare Finvest, a wholly-owned subsidiary. Further, sold equity shares of Religare United Soccer, which ceases to be subsidiary. Sold long-term investment of 17.41 lakh equity shares in Karnataka Bank, with book value of Rs 24 crore, at Rs 33.1 crore and realised long-term capital profit of Rs 9.1 crore. Acquired 70% stake in Northgate Capital LLC and Northgate Capital LP in the US through Religare Global Asset Management Inc, US, a wholly-owned subsidiary of the Company. Edelweiss Capital: Decided to charge brand usage fees to its subsidiaries beginning from 2010-11. Accordingly, income from operations included Rs 27.8 crore for the quarter, comprising Rs 18 5 crore being brand usage fee charged to its subsidiaries for the nine months ended December 2010. eClerx Services: Deferred recognition of cumulative MAT credit of Rs 11.7 crore end December 2010, which could be available for set-off against future tax liability. OnMobile Global: In October 2010, acquired the third-generation video technology and mobile solutions business from Silicon Valley based Dilithium Networks Inc. Sold 8% of its equity holding on a diluted basis in Verse Innovation Pvt Ltd for Rs 11.1 crore in July 2010. DB Corp: The printing facilities at some locations in Jharkhand and Jammu & Kashmir commenced commercial operations during the nine months ended December 2010. The results include expenses incurred on onetime pre-launch activities. SKS Microfinance: Provisions and writeoffs included additional provision of Rs 26.9 crore made during the December 2010 quarter following the recommendations made in the report of the sub-committee of the central board of directors of the RBI to study issues and concerns in the micro finance sector, dated 19 January 2011, which requires a microfinance company to maintain at all times an aggregate provision for loan losses higher of (a) 1% of outstanding loan portfolio or (b) 50% of aggregate loan instalments overdue for more than 90 days and less than 180 days and 100% of the aggregate loan instalments overdue for 180 days or more. As a result, profit before tax lower by Rs 2698.28 lakh for the quarter. Kirloskar Oil Engines: Exceptional items represented gain of Rs 3.1 crore for the quarter and loss of Rs 13.5 crore for the nine months ended December 2010 on valuation of outstanding derivative instruments taken to serve as hedge against highly probable forecast transMay 02 15, 2011 CAPITAL MARKET
Investment Strategy
ture Pvt Ltd (100% equity). Made additional investment in one of its joint ventures, M K Malls and Developers Pvt Ltd, by buying 4.57% of equity shares; 8.70% cumulative convertible preference shares and 30.21% redeemable optionally convertible cumulative preference shares during the December 2010 quarter. Jet Airways: Has equity and preference investments aggregating to Rs 1645 crore in Jet Lite (India) a wholly-owned subsidiary, and advanced interest-free loan of Rs 1464.8 crore. A reputed valuer valued the equity interest in the subsidiary as on 31 March 2010 based on its business plans, which supports carrying value of such investment. Continues to provide financial support to the subsidiary to further its business plans and expects it to turn around. Accordingly, the subsidiarys financial statements have been prepared on a going-concern basis and no provision considered necessary at this stage. Other operating income included income from leasing of aircraft. Income from such activity stood at Rs 140 crore (Rs 106.4 crore for the previous period) and Rs 380 crore (Rs 594.3 crore for the previous period), respectively, for the quarter and nine months ended December 2010. Depreciation on simulators provided on writtendown value method up to 31 March 2010. Shifted to straightline method from 1 April 2010. Surplus arising from retrospective computation aggregating to Rs 53.9 crore accounted for and disclosed as Exceptional item. Consequently, depreciation was lower by Rs 1.6 crore and Rs 4.8 crore, respectively, for the quarter and nine months. Acquired 100% shares of Sahara Airlines, now known as Jet Lite (India), in April 2007. As per the agreement and consent terms, sale consideration is to be paid in instalments by 30 March 2011. However, as a result of certain disputes that arose between the parties, both parties have filed petitions in HC for breach of agreement and consent terms. The matter is pending and the management is confident that the outcome will not materially impact the financials and, therefore, no provision made. Interest and finance charges included inflow and or outflow on closure of derivative deals. Net outflow from closure stood at Rs nil and Rs 43.7 crore, respectively, for the quarter and nine months. The corresponding outflow stood at Rs nil for the quarter and nine months ended December 2009. Sachin Khedekar
actions, which, on testing, are likely to be ineffective due to volatility in foreign exchange rates, now recognised in the P&L account. Adopted AS-11. Rs 8.4 crore, the eligible exchange difference loss in the December 2010 quarter, (Rs 21.4 crore loss for the nine months), adjusted in the cost of assets. IL&FS Transportation Networks: Subsidiary Badarpur Tollway Operations Management was incorporated for undertaking operations and maintenance activities at the Badarpur-Faridabad toll road. Invested 50.94% in the equity of MP Border Checkpost Development Company, which has signed a concession agreement for development, operation and maintenance of 24 border check posts in Madhya Pradesh. A foreign subsidiary invested 96.4% and 50% in the equity of Conservacion Sde Infraestructuras De Mexico SD DE CV and Geotecnia Y Control De Qualitat SA. Jaypee Infratech: The Yamuna expressway project progressing satisfactorily. Total expenditure incurred aggregated to Rs 92.3 crore up to 31 December 2010 against estimated cost of Rs 97.3 crore. Real Estate sales aggregated to 30.31 lakh square feet, with estimated gross sales value of Rs 9.8 crore, during the quarter. Indiabulls Power: Disinvested 26% of its stake in one of its wholly-owned subsidiaries. Invested further Rs 4.9 crore in one of its wholly-owned subsidiaries. DB Realty: Revised estimated construction cost for two of its projects. Due to revision, profit of Rs 51.3 crore and Rs 47.1 crore, respectively, so recognised up to 30 September 2010 and 31 March 2010 adjusted, resulting in reduction in profit for the quarter and nine months ended December 2010. Invested in equity shares of DB Spacecon Pvt Ltd (100% equity) and Vanita Infrastruc-
85
ApnaMoney
Tax matters
the assessee is not an owner of more than one residential house other than the new house acquired or constructed on the date when he earns long-term capital gain. Section 54 has no such stipulation. Exemption is available on purchase of new property made within one year before or within two years after the sale of the original asset. But if the property is under construction, the construction should be completed within three years after the date of sale of original asset. Exemption is not available if the construction is completed even by a day before the sale of the original asset. There is no time limit for commencement of construction. This essentially means that all the cost incurred on the construction even before the transfer of capital asset can be claimed as acquisition cost. If exemption is availed under Section 54, the assessee cannot sell the newly-acquired property within three years from the date of its purchase or construction. If sold within three years, the cost of the new asset will be reduced by the amount of long-term capital gain (LTCG) claimed as exempt under Section 54 and the difference between its sale price and such reduced cost will be chargeable as short-term capital gain for the year in which the new asset is sold. If exemption under Section 54F is availed, the assessee cannot sell the new property within three years. Also, he should not purchase within two years or construct within three years another residential house. If either of the aforesaid conditions is not satisfied, then capital gain claimed as exempt under Section 54F shall be deemed to be LTCG of the previous year in which such new asset is transferred or another house is purchased or constructed. We see lot of advertisements about banks and non-banking finance companies (NBFC) saying that their gross and net nonperforming assets (NPA) have gone down. Does it mean that they will get the full writeoff in their income tax assessments?
Loukesh Varia, e-mail
Tax Matters
Are bonus debentures and preference shares tax-neutral?

By T K Doctor & Zankhna P Mehta
Some public limited companies in the past have given bonus debentures while some others issued bonus redeemable preference shares. Please explain the intricacies.
Shankta Prasad, e-mail
A fixed amount of dividend is paid on preference shares every year before dividend is announced on ordinary equity shares. As a result, investors holding preference shares are confident about getting dividend. As the instrument is redeemable there is also return of the principle amount for the shareholder after a prefixed number of years. Preference bonus shares do not qualify as normal dividend or as deemed dividend. Thus, the issue is tax-neutral but the tax incidence would shift to the redemption date. In addition, the fixed rate of dividend received every year on preference shares is considered as normal dividend income. Bonus debentures are received free of cost because of the equity holding in the company. This receipt is deemed dividend and taxable in the hands of the receiver. Thus, there will be an element of income and tax when bonus debentures are issued. When the debentures are redeemed at face value on their maturity, there will not be any gain or loss for the investor. The interest that
86
will arise on the debenture will be taxable in the hands of the investor as income from other sources. As per Section 54 and Section 54F of the Income Tax (IT) Act, 1961, new property acquired cannot be disposed of within one year or two years or three years to claim exemption from capital gain? The language is confusing. Hence, can you clarify?
Purandar M, e-mail
Section 54 of the IT Act provides exemption to capital gain arising from the transfer of a long-term residential house property if the amount of capital gain so arisen is reinvested in another residential house property. Section 54F provides exemption to capital gain arising from transfer of any long-term capital asset other than a residential house property if the net consideration (sales value less expenses) is invested in a residential house property. Section 54F is applicable if
Under Section 36(1)(viia) of the Income Tax
Bonus preference shares are tax-neutral but would be taxed on redemption. Bonus debentures are deemed as dividend and taxable in the hands of the receiver
ApnaMoney
(IT) Act, 1961, banks are allowed deduction for provision of NPAs up to specified limit, i.e., 7.5% of gross total income. Generally, the amount of NPA provision made, as per the Reserve Bank of India (RBI) norms, is much more than the deduction allowable under Section 36(1) (viia) of the IT Act. As a result, a major part of the NPA provision gets disallowed. However, NPA provisions made by NBFCs, as per by the RBI norms, are disallowed by tax authorities when assessing their income tax liabilities although these are business expenses. Banks enjoy tax benefit on NPA, as per the RBI norms. But NBFCs, which are also required to follow these prudential norms for NPAs, as per RBI directives, are denied this tax benefit under Section 36(1)(viia). Is interest paid by partnership firm on loan taken from a co-operative credit society liable for tax deduction at source (TDS)? If the credit society invites deposits from and gives gross loans to its members, will it be confined in the definition of Co-operative credit society doing banking business?
Rajan Anandpara, e-mail
Tax matters
Deductions under Section 10A or 10AA or 10B or 10BA or under provisions of Chapter VIA of the IT Act will not be allowed if the assessee fails to claim them in his IT return
wholly by government, are notified. As co-operative credit society is not covered, the partnership is liable to deduct TDS on payment of interest on loan taken from co-operative credit society. Under the Direct Taxes Code, there is a specific provision for tax to be deducted at source. If the payment after deduction of TDS is not accepted by the co-operative credit society, then the deductor can demand the circular or declaration from the deductee under which the deductee is excluded from the scope of Section 194A. I had filed my income tax return for assessment year 2008-09 (financial year 2007-08) on 1 June 2008. But on account of my ignorance and hurry to file return quickly to get refund at the earliest, I failed to claim the benefit for certain donations made and tuition fees paid for my children. Instead of refund, I have been asked to pay some tax, as per the scrutiny order. On showing the assessment to a competent chartered accountant, he drew my attention to the above lapse on my part, i.e., not claiming proper deductions. Is it not the duty of income tax officer (ITO) to guide an ignorant tax payer before finalising the order?
Padmanabh Bisnoi, e-mail
be allowed if the assessee fails to claim them in his income tax return. I am from Gujarat and invest in the stock market. Along with long-term investment, I also do intra-day as well as derivatives (futures and options, or F&O, trading). I want to know whether I need to audit my books of account. What is the limit for transactions in short-term, F&O and delivery-based trading to require an audit? I am employed in a textile mill.
Jack Robission, e-mail
Section 80P (2)(a)(i) of the Income Tax (IT) Act, 1961, refers to co-operative society engaged in the banking business, which, in turn, refers to co-operative society providing credit facilities to its members. The expression providing credit facilities covers the business of lending money on interest (i.e., loans) (refer Commissioner of Income Tax v Uttar Pradesh Co-operative Cane Union Federation and Rodier Mill Employees Co-Operating Stores). If your society is giving loans to its members, then it will be said to be engaged in the banking business. According to Section 194A of the IT Act, any person excluding individual or Hindu undivided family responsible for paying to a resident any income by way of interest other than income chargeable as interest on securities is required to deduct tax at source whole crediting such income to the account of payee or at the time of payment by any mode, whichever is earlier. When interest is credited or paid to any banking company, co-operative bank, public financial institutions, Life Insurance Corporation, Unit Trust of India, an insurance company or a co-operative society carrying on the business of insurance, or notified institution, then TDS under Section 194A is not applicable. Societies registered under the Societies Registration Act, 1860, financed
According to Section 44AB tax of Income Tax (IT) Act, 1961, audit is applicable if total sales turnover or gross receipt from business for the previous year(s) relevant to the assessment year exceeds Rs 60 lakh from assessment year (AY) 2011-12 (financial year 2010-11). Or if the gross receipt from the profession of the person for the previous year(s) relevant to the AY exceeds Rs 15 lakh from AY 2011-12. For delivery-based transactions, the limit of turnover is arrived on the basis of sales proceeds/value. For F&O and nondelivery-based transactions, the limit of turnover is arrived at on the basis of aggregate of all positive and negative differences. For example:
Case A Sales proceeds Cost Profit/(Loss) 100 10 90 Case B 100 110 (10)
As per circular no 14, dated 11 April 1955, issued by the Central Board of Direct Taxes, it was clarified that ITOs must not take advantage of the ignorance of assessees to their rights. It is their duty to assist taxpayers for claiming and securing relief. ITOs should take the initiative when it comes to their notice that some refund or relief is due to the assessees. Yet, in many cases, some ITOs do not allow such deductions to the assessees. As a result, when such a case comes to the notice of the taxpayer, he has to go in for litigation. In 2009, Section 80A(5) of the Income Tax (IT) Act, 1961, was introduced with retrospective effect from 1 April 2003 to provide that deductions under Section 10A or 10AA or 10B or 10BA or under provisions of Chapter VIA of the IT Act will not
For delivery-based transactions, the sales turnover is Rs 200 in the example (Rs 100+Rs 100). For non-delivery based transaction, F&O turnover is Rs 90+Rs 10 = Rs 100. Negative sign is ignored. To determine the limit of Rs 60 lakh, the aggregate turnover of both your business will be considered (i.e., textile and share trading). ...................................................................
The replies are only in the nature of guidelines. The tax counsellorsand the publication are not responsible for any decision taken by readers on the basis of the same. Readers may address their queries on direct taxation to: T K Doctor, C/o Capital Market, 101, Swastik Chambers, Sion-Trombay Road, Chembur, Mumbai-400 071. E-mail: tax-matters@capitalmarket.com
87
CapitalineCorner
KSB Pumps
Capita Telefolio beats BSE Sensex by almost 200%
Will be back on growth track

Set to reap benefits of healthy order book, capacity expansion and strong technology support from parent
KSB Pumps is the Indian associate of Klein agency commission from the parent for loSchanzlin & Becker (KSB), Germany. The cal services. Going forward, the parent will foreign promoter holds 40.54% stake and transfer the entire technology for manufacthe Indian promoters 25.95%, taking the turing the super critical pumps to the Indian total promoter holding to 66.49%. The parent has 19 manufacturing locations and 51 operating companies worldwide, with sales in more than 100 countries. http://www.telefolio.com The group reported sales of about 1.9 bilFOR MORE DETAILS FLIP TO PAGE 82 lion euro and profit of about 90 million euro in 2010. Its order book is up 7% to about 2 Expanding capacity billion euro from a year ago. Through its distribution network, the group supplies its KSB Pumps has earmarked a capex of products to building services, original equipabout Rs 80-Rs 100 crore, which will ment manufacturers, the energy and mining double its pump capacity and boost industries in the public sector, power plants, valve manufacturing and process engineering players. KSB's products are also used in the chemical, petrochemical and other industries to transport aggressive, corrosive, explosive, solid-laden and viscous liquids, and industrial and municipal waste water, and in heating and air-conditioning The companys high-value valves, especially control valves, are used in the power and other engineering sectors. With a significant presence in the Asian market, KSB is showing an order book growth of nearly 33% over the year. Though the markets in the EU and US have stopped falling, they are still to KSB Pumps : Financials grow. To cater to the demand in these regions, the group has earmarked a capex 0812(12) 0912(12) 1012 (12) 1112(12P) of about Rs 80-Rs100 crore, which will Sales 601.00 567.56 615.10 738.12 double its capacity in pumps and add OPM% 18.0 20.3 13.6 15.5 some additional line of manufacturing in OP 108.41 115.19 83.65 114.41 Other inc. 5.50 7.75 11.87 12.55 the valves division. The brownfield capex PBIDT 113.91 122.94 95.52 126.96 will be funded through internal accruals. Interest 2.25 1.82 0.53 0.55 This is for the first time after many years PBDT 111.66 121.12 94.99 126.41 that the company is incurring such a sigDep. 13.02 20.34 20.74 23.02 nificant capex. PBT 98.64 100.78 74.25 103.39 KSB Pumps manufactures pumps EO 0.00 0.00 0.00 0.00 used in up to 650-MW power plants. This PBT after EO 98.64 100.78 74.25 103.39 capacity takes care of all the subcritical Tax 33.91 34.60 22.68 34.12 orders of the power sector. The pump PAT 64.73 66.18 51.57 69.27 EPS (Rs)* 18.6 19.0 14.8 19.9 project orders for super critical technolEPS (Rs)** 20.6 20.4 16.8 22.0 ogy and for ultra mega power projects are *Standalone EPS on current equity of Rs 34.81 crore of face value bid for by the parent. It has won conof Rs 10 each. **Consolidated EPS. EO: Extraordinary items. tracts from Tata Power and Reliance InFigures in Rs crore. (P): Projections. Source: Capitaline Databases frastructure. The Indian company earns
88
company and will use it as a manufacturing base once the planned capex is over. Associate company MIL Controls, in which KSB Pumps India has 49% stake, manufactures robotic valves. This is a niche technology-intensive business catering particularly to gas production, upstream, midstream and downstream activities, and all industries where human intervention is not possible. The company has consistently reported profit and, more importantly, it continued to grow even when there was general downturn in the industry. It reported PBT of Rs 27.91 crore in calendar year (CY) 2010 as against PBT of Rs 20.9 crore in CY 2009. KSB Pumps reported net sales growth of 8% to Rs 615.10 crore, while OP was down 27% to Rs 83.65 crore in CY 2010. PAT was lower by 22% to Rs 51.57 crore. After adding the share of profit of Rs 9.04 crore of MIL Controls, consolidated PAT was down 18% to Rs 58.39 crore over CY 2009. After the global financial turmoil and its adverse effects, KSB Pumps India had to bag orders at low prices to survive during the slowdown. Most of these low-margin orders were executed in CY 2010. Hence, margin crashed to 13.6% in CY 2010 from over 20% in CY 2009. In fact, this was the lowest margin the company had reported for the past many years. With the Indian economy getting back on track and orders flowing smoothly, it was able to grab many pump project orders at better margin in CY 2010. Execution will take place from CY 2011. We expect KSB Pumps to register standalone net sales and PAT of Rs 738.12 crore and Rs 69.27 crore, respectively, in CY 2011. This gives EPS of Rs 19.9. We expect consolidated EPS of Rs 22. At the current market price of Rs 278, the scrip is available at 14 times its standalone CY 2011 earning and at 12.6 times its consolidated CY 2011 earning. This P/E ratio is low for an MNC associate set for growth and capacity expansion.

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May 02 15, 2011 CAPITAL MARKET

India Nippon Electricals

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