Ramco’s accounting issues -
• Interest expense / Finance cost – I need help on this one, as the footnotes (notes to account) for the consolidated numbers 2015 are not clear, or at least I have not understood them properly. Issue – Finance cost actually paid in cash outflows, per the cash flow statement (CF from Financing) shows INR 34.8 Cr paid, the P&L shows a finance cost of INR 12 crores. Total unsecured LT loan from bank (not total LT debt) is 218 cr. The approximate weighted average of the interest rate chart shown in footnote 4.2 (page 144) = 11.8%. So 11.8% of 218 cr is approx. 25 cr in finance cost, when this number is added to interest on short term debt and other LT debt obligations a total finance cost of 34 cr (which is what they actually paid) makes more sense. So why is a finance cost of 12 cr shown on the P&L? Also 12 cr of finance cost for a total LT debt (ignoring ST debt) of 218 cr works out to a 5.5% interest rate. This is below RBIs repo rate and is not possible. I need to find a way of reconciling all these numbers.
Additionally finance cost as reported on the P&L last year (2014) was 11.5 cr (or 50 lakh less than current year) when LT borrowings were 182 cr vs current year’s 218 cr. So for a 36 crore increase in LT debt, finance cost went up by just 50 lakhs? I could be totally wrong here, and this in all likelihood maybe a timing issue. But I have not understood this, and need clarity. I’m usually not so nitpicky and gloss over this stuff shaking my head with a smile, but for a company with a net profit of 13 crore, and a cash vs reported interest payment differential of 22 cr this does become pretty significant as this could single handedly determine whether the company posts a net profit or a net loss on the P&L.
• Trade Receivables – Of a total of 129 cr in receivables, per note 16 (page 148), 76 crores is more than 6 months due from the date they were to receive payment (The figure for 2014 is 25 cr that was more than 6 months due so a 3 fold increase YoY). In other words nearly 60% of their receivables are extremely overdue and are increasing at an alarming rate. Their provision for bad debt / uncollectable accounts (note 25, page 149) reflects a corresponding increase from 10.4 cr to 11.8 cr. I would think that if someone hasn’t paid you the 76 cr they owe and are more than 6 months (so could be 7 months overdue or a year or two, don’t know) behind on their payments from the date they were supposed to pay, the provisioning should be substantially higher as opposed to a 1.4 cr increase YoY in bad debt provisioning. So I have no idea what’s going on with their receivables, how much of it can actually be recovered, on what basis they are provisioning the logic of the same etc. If provisioning is increased it would directly hit the bottom line though and reduce net profits. This is totally up to management discretion, and I don’t have the details of these debtors, so going to leave it at that. In the interest of fairness and balance, another way of interpreting this number is that they are provisioning nearly 10% of their trade receivables which is very good and in line with conservative reporting. I will it leave it to the discretion of the reader to come up with his / her own interpretation.
• Other Income – Note 17, page 148 details the cash on hand. Cash on hand (Bank balance) is shown as INR 10.5 crores. Interest income under the “other income” sub heading (Note 21, page 149 ) shows an interest on presumably this cash of just 36 lakhs. Or a 3% interest on the bank deposit. Same is the case in 2014 as well. Keep in mind the time period under discussion was prior to any rate cuts by the RBI. Again it is important to note that a BS is just a snapshot in time, so this very well could be a timing issue, but this needs further study to remove doubts.
• Other – Page 150, footnote 25 shows that their power and fuel costs came down marginally and so did their rental expense (some part of this rent expense is a related party transaction with Ramco cement). For a company with a growing workforce, I would have expected the opposite. That being said there could be several reasons that could explain this, I don’t have all the facts as they aren’t disclosed. Contingent liabilities doubled from approx. 9.5 cr to approx. 19 cr. Page 151 on deferred taxes (copy paste from 2015 annual report) – “The parent company has net deferred tax assets as at March 31, 2015 and March 31, 2014. However, the parent company has not taken credit for such net deferred assets” Why haven’t they claimed this and reduced their tax bill? Actual cash taxes paid as shown on CFO is 60% of reported tax payable, 1.47 cr actually paid (Pg 139) vs tax liability on the P&L of 2.5 cr