Tata Engineering's proposed Rs 1,180 crore set-off of miscellaneous expenditure against the securities premium account is likely to result in a dramatic change in the company's key financial parameters -- net worth, return on net worth and debt equity ratios.
Also, due to the one-time set-off, the company's annual financial results will not have to take any hit from now on. In 2000-01, Rs 137.36 crore of the Rs 500.34 crore loss posted by Tata Engineering was due to the amortised deferred revenue expenditure.
The immediate effect of the restructuring is felt on the company's net worth, which has dropped by 10.6 per cent to Rs 2,073.78 crore from Rs 2,320.78 crore earlier (excluding the deferred revenue expenditure of Rs 933 crore which has also been set-off).
Praveen Kadle, executive director (corporate affairs), Tata Engineering, pointed out that it is a standard practice of financial institutions and credit rating agencies to deduct the deferred revenue component from net worth calculations. Hence, the decline in the new net worth of the company is limited to only the diminutions on fixed assets and investments (Rs 237 crore), and not the entire Rs 1,180 crore, he said.
Automobile sector analysts said that the lower net worth will have a sharper impact on the key parameter -- return on net worth. "Due to the smaller denominator, the company's return on net worth will look bad at bad times, and good at good times."
The restructuring could also be a precursor to an important event in the future, other analysts said.
Following this phase of financial restructuring, Tata Engineering's return on net worth has eroded to minus 24.12 per cent as on March 31, 2001, from minus 15.37 per cent earlier. This is due to the Rs 500.34 crore losses posted by the company in 2000-01.
Also, the company's debt-equity ratio has risen to 1.44 from 0.92, according to its 2000-01 balance sheet.
However, Kadle said, "The debt-equity ratio will be less than one at the end of the current fiscal, as we have already reduced our debt by around Rs 260 crore, and will further reduce it. We are planning to bring down our total debt to around Rs 2,000 crore from Rs 3,000 crore at present.
The size of its balance sheet will come down to Rs 5,072 crore from Rs 6,252 crore. Without mentioning any targets, Kadle said that the company is planning to reduce it further "to enhance shareholder value".
