A sharp jump in interest burden has further affected profits at the gross level. Net loss stood at Rs 47.53 crore against a net profit of Rs 14.86 crore as on March 1995.
In fact, the net loss would have been much higher. According to the auditors qualifications, capitalisation of detention charges, concor charges, etc. amounting to Rs 7.77 crore are not directly attributable to the acquisition of fixed assets, and hence should not have been capitalised. As a result, the loss for the year has been understated by Rs 7.77 crore. The auditors were also unable to comment on the recoverability and consequential effect of a loan of Rs 1.28 crore. However, the loan is considered good by the management.
Poor performance has not deterred DCM Shriram from investing in group companies. For the 18-month period ended September 1996, investments increased from Rs 22.17 crore to Rs 46.79 crore. It should be noted that during the same period, the gross block increased by Rs 8.73 crore only.
Investments in subsidiary companies DCM Shriram Leasing, Indital Tintoria and DCM Shriram International B V increased from Rs 4.31 crore to Rs 9.41 crore.
Similarly, investment in group companies increased by Rs 23 crore. In fact, the company has invested Rs 10 crore in interest-free non-convertible debentures (face value Rs 100) of Daurala Organics.
These debentures are to be redeemed at a premium of Rs 26 each on April 1998 (three years from the date of allotment), with an option to the company to surrender the debentures for redemption prior to the due date in which case no premium would be paid. This means that the company would be getting less than nine per cent annual yield on these loans.
As if this was not enough, the company has given an advance of Rs 6.88 crore to the subsidiaries. Advance towards preliminary and pre-operative expenses incurred for DCM Remy was Rs 1.63 crore.
The idea of giving loans is fine as long as the company has enough funds. In fact, DCM has increased its borrowings. As on September 1996, borrowings stood at Rs 244.18 crore, up 59 per cent from March 1995. Higher borrowings, which resulted in huge interest outgo, have already made a hole in DCMs pocket.
The net interest cost rose from Rs 13.11 crore to Rs 48.43 crore. DCM has investments of Rs 3.47 crore (last year Rs 0.81 crore) in the subsidiary- Indital Tintoria (ITL). The amount due from this subsidiary is Rs 8.04 crore. DCM has also given a guarantee to financial institutions and banks for repayments amounting to Rs 8.79 crore. As on September 1996, ITL had an accumulated loss of Rs 8.34 crore and a net worth of Rs 4.45 crore. Can DCM recover the money in the near future? According to the annual report, the management is hopeful.
Apart from a liberal attitude towards its group concerns, DCM has also revalued its assets. Of the total reserves of Rs 133.62 crore, revaluation reserves stands at Rs 76.43 crore 57 per cent of the total reserves.
