Even as a large section of India Inc works overtime to prepare its annual results for FY13, a number of firms will not be going public with the information any time soon as they have changed their reporting period.
In CY13, about 24 companies have informed the stock exchanges of their intention to change their fiscal year-end period. Several of them have either huge debt on their books or are finding it hard to generate cash flows to stay afloat ? as many as 13 firms have a debt-to-equity ratio of more than two.
A company?s accounting period can be changed for operational convenience or industry benchmarking. However, a change in this period could happen when the company is in the midst of considerable disruption or turmoil, going through some sort of restructuring or if the management is not able to present a fair picture of the business, said experts.
Videocon Industries is a case in point. The company, which had a total debt of R27,283 crore as on December 2011, started off as a June-ending company. In 2009, its financial year end was changed to September and, in 2010, it was pushed to December. The company’s reporting period seems to have come a full circle this year, with the year-end getting changed to March. Similarly, companies like Kingfisher Airlines and Hinduja Foundrie have changed their year-end twice in the past.
?Typically, when their business is doing well, companies do the reporting on time. But if there are significant losses, the company would like to buy time and delay the reporting period to defer the impact on the stock,? said AK Prabhakar, senior VP, equity research, Anand Rathi.
Firms such as Tulip Telecom and Jai Balaji Industries, which changed their reporting period in 2012, were referred to the Corporate Debt Restructuring (CDR) cell for debt recasting recently. Others such as KS Oils and DC Holdings have pledged almost 100% of their holding with lenders for raising funds. Analysts pointed out that pledging shares is the last available option for promoters to raise funds and shows a marked weakness in the company?s everyday operations.
Changing the financial year-end can be a time-consuming process and could take at least about a month, said experts. ?One has to get the board approval, apply to the RoC and interact with regulatory authorities, justifying the need for change, among other things,? said Avinash Gupta, senior director & leader, financial advisory, Deloitte.
Also, a change in the year-end period is viewed negatively by investors and analysts. ?Investors and analysts like certainty and would like to compare like for like. Changes in the reporting period are not looked upon favourably,? said Gupta. He added that deferring the accounting period is not a common practice globally.
Even though companies are free to follow any accounting year of their choice, most companies in India chose to close their books on March 31 to take care of requirements of the Income Tax Act. However, it has been observed that the Indian arms of foreign entities follow their parent for easy consolidation of books of accounts. For instance, the year-end of ACC and Ambuja Cements were changed in 2005 considering their parent Holcim followed a January-December accounting period.
According to the Companies Act, 1956, the maximum period of financial year can be 15 months, but can be extended up to 18 months with the permission of the Registrar of Companies (RoC).