Four years after the collapse of Satyam, following a dramatic disclosure of inflated earnings, the Bangalore-based public sector undertaking HMT has significantly ‘revised’ its accounts for the previous year. Two months after its Chairman and Managing Director (CMD) was suspended by the Department of Heavy Industry (DHI) for ‘fudging’ and ‘manipulating’ figures about the company’s performance, the listed company’s much-delayed mandatory filings of financial results for 2012-13 to the stock exchanges reveal the severe hit the company has taken for the actions by those at the helm of the beleaguered PSU.
The filings reveal that the company made gross sales of Rs.100.95 crore in 2012-13, compared Rs.161.12 crore in the previous year, a 37 per cent slump.
Net sales, after deducting excise paid on output, amounted to Rs.99.42 crore in 2012-13, compared to Rs.159.56 crore in the previous year. The company’s net loss worsened embarrassingly, from Rs.89.55 crore to Rs.145.38 crore, an increase of 77 per cent.
Fudged figures
Interestingly, the company made no filings for the last quarter of 2012-13, which can be directly attributed to inflated figures of the sale of tractors, the only product it now manufactures, at its unit at Pinjore, near Chandigarh. “Obviously, there would have been nothing to declare in the last quarter, there would only have been a string of zeroes,” a company insider told The Hindu .
“Having overstated output and sales in the previous three quarters, there was no other option,” he explained.
The painful ‘adjustment’ that the company had to make in the last quarter of 2012-13 because of the ‘fudge’ is highlighted by the fact that the company reported net sales of Rs.133.38 crore in the first nine months of the previous year (April-December, 2012), an increase of 36 per cent over the corresponding period of 2011-12. What this implies is that the company’s profits in the first nine months of the year were about one-third higher than in the full financial year! And, this has obviously to do with the inflated-sales of tractors that were reported during the period when S. G. Sridhar, the company’s former CMD, was at the helm.
Cooked accounts
An analysis of the company’s performance in the last three years shows that its gross loss ratio, which is the ratio of losses to sales, rose dramatically last year — from 11.49 per cent in 2010-11 and 15.78 per cent in 2011-12 to a whopping 73.64 per cent in 2012-13.
What explains this abnormal spike?
Although information on this is not yet available, one speculative guess — given the ‘fudge’ that has happened — is that the inflated production would have also resulted in inflated consumption of raw materials used in the production of tractors. An internal inquiry initiated by the DHI revealed that the tractor production figures for 2012-13 were inflated by about 50 per cent and that sales had been overstated by more than 56 per cent.
As a result, sales were reported at Rs.155.13 crore instead of Rs.99.41 crore, implying a difference of Rs.55.71 crore in value terms. Moreover, the DHI found that Mr. Sridhar was responsible for “siphoning/misutilising” funds amounting to Rs.38 crore that was released by it to HMT specifically for working capital purposes.
The DHI also suspended three other senior officials at the Pinjore plant for the alleged irregularities.
The DHI has constituted a committee to conduct an ‘internal inquiry’ into the affair, according to a source in the Department. A charge sheet on Mr. Sridhar will need to be filed within 90 days after he was served with the suspension notice, the source said.
Harbhajan Singh, Joint Secretary, Ministry of Heavy Industries, has taken charge of the company for a three-month period on June 15. He should be familiar with not only the state of the company but its fate since he has been on the board of HMT since January 11, 2010.
Meanwhile, shareholders have filed complaints to the Securities and Exchange Board of India and the Karnataka Lokayukta seeking a probe.
