If these extraordinary costs/ gains on account of forex and sales of fertilizer bonds are neutered from the expense side of the P&L account for either year, then one will end up with the ridiculous situation of the company actually recording a substantially higher pre-tax profit of Rs 1.5 bn in FY09, against a pretax profit of Rs 571 m in FY10. This is absurd. On the one hand we have the management crowing about record production, record volume sales, and record profits etc, and add to this the large imports of finished stocks for resale, and the company actually makes less money in the bargain. This is a no brainer. (Granted that managements perforce have to present the sunny side of an enterprise, but that does not mean going overboard in the process.)
Complex accounting exercise
Even the accounting for its expenses etc appears to be a complex exercise. One schedule says that the CIF (Cost, Insurance and Freight) value of its raw material imports is Rs 3.9 bn, while another schedule says the value of imported raw materials is Rs 9.1 bn. How can there such a big difference in the two figures. (For the preceding year the figures are Rs 8.1 bn and Rs 13.3 bn.) There appears to be some mismatch in the finished goods import schedules too. And, from the cash flow that it has generated, the management has been kind enough to spend a little over Rs 1 bn in the last two years in replenishing the gross block. It has however not led to any visible increase in its operational efficiencies for sure.
Since it is de-rigueur for corporate houses to boast a few subsidiaries, MCF too has an offshoot sporting the name, MCF International, with a paid up capital base of Rs 500,000. Not surprisingly it is making heavy weather. From the sketchy details that the company has provided, this sibling has made a loss before taxation of Rs 28 m on a turnover of Rs 121 m in FY10. The after tax loss is slightly more lustrous at Rs 29 m. The quantum of its negative net worth is however not stated. And it had total liabilities of Rs 25 m. The latter figure is a bit puzzling because as per the parent's annual report, the total outstanding at year end from the sibling, being loans advanced to it, was Rs 79 m (Rs 12 m). This loan element does not appear to feature as a liability in the minimal details of the accounts furnished by the sibling.
All in all it is another insipid performance.
I DO NOT HOLD ANY SHARES IN THIS COMPANY, EITHER DIRECTLY, OR UNDER NON DISCRETIONARY PORTFOLIO
This column "Cool Hand Luke" is written by Luke Verghese. Luke has been a business journalist, financial analyst and knowledge management head with a professional experience of more than 20 years. An avid watcher of the stock market, he has written extensively on stock market trends. His articles have featured in Business Standard, Financial Express and Fortune India amongst others. He has also been the Deputy Editor, Fortune India and the Financial Editor of The Business and Political Observer.
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