Infocomm receivables 29% of gross revenue

Maze of transactions with related parties.

Reliance Infocomm Ltd's level of receivables is extremely high. Its balance sheet shows that its receivables on March 31, 2004, amounted to Rs 837.86 crore, as much as 29 per cent of its gross revenues for the year.

What is more, this was the level of receivables after making a provision of Rs 436.26 crore for bad debts. This high level of receivables has also led the company to assign its sundry creditors to an associate company, and the balance sheet says an amount of Rs 2,045.94 crore was paid to an associate company for assignment of sundry creditors.

That, in effect, means Reliance Infocomm's debts were transferred to an associate company. Since Reliance Infocomm remains ultimately liable to its creditors, a sum of Rs 1,547.72 crore appears as a contingent liability in its books.

The maze of transactions with related parties does not end here. The company's expenditure for financial year 2004 shows that as much as Rs 389.11 crore was paid to associate companies for items such as maintenance and marketing charges.

For instance, "marketing service charges" amounted to Rs 237 crore, probably for the services provided by Reliance Industries to Reliance Infocomm.

A large chunk of the payment for the company's capital expenditure also went to an associate company. Of a total addition of Rs 10,534.59 crore to its gross block during the year, Rs 3,101.41 crore was on account of "indefeasible rights of connectivity".

Sources in the group say this amount was probably paid to associate company Reliance Communications Infrastructure Ltd as a lump sum payment for making long-term use of its backbone.

During the year, Reliance Infocomm made a loan of Rs 970.08 crore to one of its subsidiary companies, Reliance Gateway Net Ltd, for investment in Flag Telecom.

And finally, even in the very early stages of its existence, Reliance Infocomm has invested Rs 2 crore in a company called Reliance Infoinvestments Ltd, the details of which are unavailable to investors.

When asked to clarify these entries in Reliance Infocomm's balance sheet, a Reliance group spokesperson referred Business Standard to another senior group executive.

However, an e-mail sent to the executive was not responded to. In financial year 2004, Reliance Infocomm made a net loss of Rs 390.31 crore on total income of Rs 2,706.96 crore. Operating profits before amortisation and depreciation amounted to Rs 159.81 crore. Diluted earnings per share for financial year 2004 were a negative Rs 1.03.

The company's net worth amounted to a huge Rs 11,697.34 crore, thanks largely to the massive premium on the issue of preference shares, which was Rs 8,480.43 crore.

Equity capital amounted to Rs 416.35 crore while preference capital was Rs 181.24 crore. Loans from banks and financial institutions amounted to Rs 2,442.36 crore. Practically all the money raised from share issues and loans was used to fund capital expenditure.