India Inc takes cautious approach to Covid disclosures mandated by Sebi

Most firms not indicating financial impact

Corporate India is going slow on Covid-related disclosures mandated by the Securities and Exchange Board of India (Sebi) last month. At least twenty-five companies across sectors have come out with disclosures in separate filings to the stock exchanges, but they have given a general business update, without specifying the financial impact of the coronavirus crisis on their operations.

In a circular dated May 20, Sebi had directed the listed companies to evaluate the impact of Covid-19 on their capital and financial resources, profitability, liquidity position, assets, and ability to service debt.

Instead, companies have spoken about the number of plants, warehouses and distribution centres that have resumed operations; work-from-home and safety measures undertaken for employees; and the labour shortage they are facing. They say it is difficult for them to assess the impact of the pandemic on their business. The few which have bucked the trend include names such as Mahindra & Mahindra (M&M), Dabur India, BPCL, and Ultratech Cement.

Corporate lawyers, however, point out the May 20 circular is worded as an “advisory”. “Across the circular, the listed entities are encouraged to assess the impact of Covid-19 to the extent possible and consider disclosing the material information,” Anchal Dir, Anshu Choudhary, and Aakriti Thakur of law firm Cyril Amarchand Mangaldas said in a note. 

Bajaj Finance has opted to give a detailed insight of the financial impact of the pandemic on its business in its recently released March-quarter investor presentation rather than making a separate disclosure to the stock exchanges. The above-mentioned four companies, however, have come up with separate disclosures on the same. Some experts argue that the Sebi circular has come after many firms declared their March-quarter results. 

Dabur, for example, said it expected its revenue from operations and net profit to take a hit to the tune of Rs 400-450 crore and Rs 60-80 crore, respectively, in the quarter ending June 2020 as coronavirus cases continued to rise in the country, impacting demand. 

BPCL said April 2020 demand was down by around 55 per cent versus the previous year, while demand for petroleum products increased by around 67 per cent in May 2020 versus the previous month. Ultratech Cement, on the other hand, said in a disclosure on Friday that it was restricting its capital expenditure to Rs 1,000 crore due to Covid-19. 

M&M said in an exchange filing on Wednesday that it estimated a quantum loss of around 23,400 vehicles and 14,700 tractors in March, and a volume loss of 87,000 vehicles and around 30,000 tractors in the April-June period. 

Proxy advisory firms say there should be a detailed framework by which companies should abide when making Covid-related disclosures rather than dispersing it across financial results, investor calls and presentations, and even fundraising documents. 

“A couple of things need to be kept in mind here,” says Amit Tandon, founder and managing director, Institutional Investor Advisory Services (IiAS). “First, whatever is material needs to be shared with investors. Second, where companies feel that the failure to disclose a particular risk will make the financial statements misleading, then it must be disclosed to investors,” he said.

Reliance Industries (RIL), for instance, said in the prospectus of its recently closed rights issue that its refining, petrochemical, and oil and gas businesses had received a "demand-side shock" due to Covid-19, adding that the lockdown was expected to have an "adverse effect" in the short- to medium term on several businesses.

Bajaj Finance said growth of assets under management (AUM) was down by 400 basis points in the March quarter. Its new loan book growth had been hit by 18 percentage points and new customer acquisitions were also lower by 18 per cent in the period. One basis point is one-hundredth of a percentage point.

Bharti Airtel said in its March quarter investor call that coronavirus had impacted nearly all parts of its business in the short-term because very few people were walking into its stores.

Chartered accountants that Business Standard spoke to said there was a risk attached with making disclosures related to ongoing issues such as coronavirus. "It is an evolving situation," said Jayant Thakur, a Mumbai-based chartered accountant. "Investors can hold a company accountable if a disclosure is made prematurely. This could impact its stock price. Which is why there is a level of caution with these Covid disclosures," he said.

But some analysts point to the contrary, saying that detailed Covid disclosures will not only help investors in understanding its impact on business better, but also raise corporate governance standards. In auto, for instance, Mitul Shah, vice president, research, Reliance Securities, says monthly sales dispatch numbers are simply not enough during unprecedented events such as coronavirus. 

"Precise details on the impact on revenue, bookings, and retail would have helped in interpreting and analysing numbers in a better way," he said. In information technology, companies such as Tata Consultancy, Infosys, Wipro, HCL Technologies, and Tech Mahindra have all said that projects are either getting cancelled or being deferred by clients due to the pandemic. Most firms expect their operating margins to be under pressure in the April-June period, with some expecting a fall in revenue.

With inputs from Ram Prasad Sahu and Debasis Mohapatra