Interesting nuggets from company quarterly results from Jan 1 to Jan 25,2014

As per the quarterly reporting calendar mandated by the Indian securities regulator SEBI, listed companies are supposed to release their quarterly income statement within 45 days from end of the quarter(and balance sheet every half year). Notes to accounts are also mandatory, and while often overlooked, give very interesting information which could otherwise be overlooked, or only mentioned by discerning news sources like Mint newspaper. Why should investors bother? All these are issues which go directly to the quality of earnings considerations, and warrant a relook at the investment thesis, as also early warning flags even if not highlighted in company press releases

Following goes
1) In Note 3 of its results, CAIRN INDIA disclosed an one time P&L charge of Rs 1555 Mn(around Rs 1395 Mn post tax) on account of measuring its outstanding employee stock options via Black Scholes method instead of intrinsic value method(only accountants would really go into these details). While this impact was hardly 1.5% of the year to date PAT, it was still quite interesting to see such large impacts and the timing of this non mandatory charge-maybe cleaning up the books to reduce CSR charge? http://www.bseindia.com/xml-data/corpfiling/AttachLive/Cairn_India_Ltd_230114.pdf

2)In their report annexed to DISH TV financials, the auditors i.e KPMG flagged attention to the erosion in net worth, non renewal of license(till date, though mere formality), and the company's mismatch in depreciating CPEs over 5 yrs, but booking the advance revenue in 3yrs. This was probably another long drawn audit unadjusted difference, which the company expensed this time  http://www.bseindia.com/xml-data/corpfiling/AttachLive/Dish_TV_India_Ltd_230114.pdf

3)THERMAX Group expensed nearly 10% of their previous years profit(i.e 10% of 350 crores cf Rs 35 crores)  being provision made for estimated liability likely to arise upon its claim for deduction of certain business expenses being held inadmissible consequent to a survey u/s 133A of the Income Tax Act This was despite not having received an order after the survey!! Usually companies vehemently contest the charges as being without merit etc, but Thermax seems to have rolled over! Also, the closure of the Mundra SEZ unit for not having received environmental clearances, affected this quarter http://www.bseindia.com/xml-data/corpfiling/AttachHis/Thermax_Ltd_210114.pdf

4) ASHOK LEYLAND credited the net profit around Rs 14 crores, from sale of immovable property to its profit and loss instead of directly to equity via general reserve. This change was done this quarter i.e Dec13 onwards, just when the company shifted into losses! http://www.bseindia.com/xml-data/corpfiling/AttachHis/Ashok_Leyland_Ltd1_210114.pdf

5)In KEMROCK financials, the auditor drew attention to the debt restructuring of the company referred to in Note 5 of the financials, which are missing!! 4!!! http://www.bseindia.com/xml-data/corpfiling/AttachHis/Kemrock_Industries_and_Exports_Ltd_160114_Rst.pdf

Making equity research pay for itself-some solutions from India

CRISIL, though perceived as a credit ratings firm, in fact gets a sizeable chunk of its revenues from research and analytics. No wonder then, that it tried to crowd source some strategic perspectives for its annual research paper award(http://www.crisil.com/crisil-young-thought-leader-2011/index.html) but did not find any award worthy entries for the topic Future of Global Research & Analytics business. Even in 2008, the topic 'Independent Equity Research: Is it a viable business model in the Indian context?' did not get any award winning entries. It was only in 2009 that Gaurav Joshi of IIT Delhi Business school won a CRISIL Young Thought leader award in 2009 for his paper on How is the sell-side research landscape changing (http://www.crisil.com/crisil-young-thought-leader-2009/dissertations/Dissertation_GauravJoshi-IITDelhi.pdf), and broke the jinx.When the best of Indian young brains have been working on this topic for 3yrs, one would expect some good models to come through. Let us see what is happening so far(so far the global cost centre model prevails where equity research is funded with brokerage/investment banking revenues, but the bonuses are not explictly tied to those revenues..).

1. CRISIL Independent Equity Research(a division of CRISIL not affiliated with the ratings arm) publishes company equity research reports for a fee of around Rs 7-10 lakh per annum. They publish it on their site(freely downloadable), send it to email subscribers etc. Here, company pans but CRISIL lends its objectivity.
2. Both BSE and NSE commission equity research reports from CRISIL, CARE, ICRA etc for stocks they deem worthy(usually illiquid undervalued midcaps with decent public float). The stock exchange pays for this, but questions arise about the allocation of work to the agencies, accountability, selection of companies etc.
3. Like abroad, some niche Indian sites like TED(The Equity Desk run by Basant) charge for access to their research. Other stock brokers charge for trading ideas in the guise of research. However, given the unpublished track record, one wonders how long will this last. 

 A friend of mine working in CRISIL joked that the independent equity research reports are 'independent from reality!' i.e the internal opinion is not high about the reports. nevertheless, solutions (1) and (2) are unique to India, and deserve more time to be evaluated.