Spic posts cash profit, auditor picks holes

Southern Petrochemical Industries Ltd (Spic) has managed to post a cash profit of Rs 31.83 crore in 2003-04, despite its sales slipping by 7.91 per cent to Rs 1,488.89 crore (Rs 1,616.72 crore) during the year.

However, its balance sheet seems to be heavy with auditors' qualifications.

The company credits its financial performance to its debt reconstruction.

The company's total turnover was down at Rs 1508.36 crore (Rs 1638.8 crore). The effect of the corporate debt restructuring, initiated by financial institutions led by Industrial Development Bank of India (IDBI) and banks led by Indian Bank, is evident in the company's interest cost that was slashed by 72.5 per cent to Rs 48.95 crore (Rs 178.02 crore).

With the rescheduling of the $120 million floating rate note under negotiation, the balance sheet has not accounted for any interest outgo on it, while in the previous year the interest outgo was Rs 116.27 crore.

A company spokesman explained that the average interest rate has been almost halved to 7.5 per cent compared with 14 per cent in the previous years.

The bank and institutional loan repayment in tranches have been rescheduled to a maximum time-frame of 12 years. The loans currently total Rs 1,200 crore, excluding the company's working capital requirement of Rs 250 crore.

The auditors, however, have noted that the balance sheet has assumed an interest reduction of Rs 18.28 crore from two lenders which are yet to confirm their consent to reduce interest rates.

However, the company is confident that the two lenders will fall in line with majority of the lenders.

Another saving on the 2003-04 balance sheet is the interest on advance against equity to SPIC Petrochemicals Ltd (SPC) which amounted to Rs 105.73 crore in the previous year.

The year saw SPIC converting its advance against equity of Rs 248 crore to SPC in earlier years to equity.

The company has also accrued the interest on advances till March 31, 2002, amounting to Rs 306.10 crore (including Rs 105.73 crore recognised during the year) against which the company has issued zero interest bonds repayable in 10 equal half yearly installments "commencing after total repayment of the term loans to lender or 12 years from the commencement of commercial production, whichever is earlier".

Apart from this, SPC also owes Rs 2.14 crore as contract in progress (net of progress payments received) and other receivables.

The auditors noted, "In view of the delay in the implementation of the project, we are unable to express an opinion on the amount of provision that may be required for the ultimate shortfall in realisation of these assets."

The company says it is in the process of identifying a strategic partner to invest in the project.

In their notes, the auditors have pointed out that the balance sheet has made no provision for investments, loans, advance against equity, guarantees, interest and other receivables due from certain promoted companies running to nearly Rs 249 crore.

"In view of the poor operating performance of these companies, in our opinion, the possibility of full recovery is remote," the auditors noted, expressing inability to give their opinion on these.

The company has dismissed the need for such provision on the ground of having long-term involvement with the companies.

Provision for depreciation has been brought down to Rs 41.25 crore (Rs 43.34 crore). The company has shown a sharp drop in its net loss to Rs 9.41 crore (Rs 375.69 crore). The net worth of the company has improved from Rs 10.93 crore in 2002-03 to Rs 21.13 crore in 2003-04.

The consolidated financial statement of the company, its subsidiaries, joint ventures and associates presented a recovery in profit to Rs 8.95 crore (a loss of Rs 359.12 crore).

In this computation, the auditors have taken exception to the company's disregard to change in the policy parameters for the seventh and eighth pricing period with regard to retention price of urea and the disallowances made thereof.

The company has retained the subsidy of Rs 369.55 crore accrued in the books up to March 31, 2002, over and above the subsidy already granted by the government.

The auditors are not sure about the recoverability of this amount. They have raised similar doubt about the preferred claims with the government towards inventory carrying costs amounting Rs 35.87 crore.

They also highlighted the lack of provision for the accumulated net deferred tax liability of March 31, 2001, amounting to Rs 113.89 crore, having obtained an interim stay from the Madras High Court on this.

However, since all similar petitions have been transferred to the Calcutta High Court and are yet to be disposed by it.

Also doubted are the recoverability of inter-corporate deposits of Rs 6.75 crore to four companies in 1999 and Rs 11.57 crore expected from a company that is in financial difficulties.