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Sunday, Feb 03, 2002

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Companies fight shy of meaningful disclosures

Suresh Krishnamurthy
BL Research Bureau

A DIFFUSED and conglomerate structure of operations is now outdated. Or, so it would seem, if declarations by companies on segment-wise performance that is mandated by SEBI, are anything to go by.

Company after company has claimed they "operate in a single segment." Never mind that they could be in businesses as disparate as chalk and cheese. This is revealed in an analysis of such disclosure by a sample of companies.

For instance, Tata Engineering has said that it is in the business of automotive products that constitutes a single business segment. It produces, trucks, buses, passenger cars, and multi utility vehicles.

In some cases, the segment information provided by companies are not meaningful. For instance, Steel Authority of India has provided plant-wise information. Information based on products - `flat' and `long' steel products with its distinct market characteristics - would have been more meaningful. In the case of Nestle too, information has been provided based on domestic and export sales whereas there is no information on the performance of various products in its portfolio of businesses. Nestle is into confectionary, culinary products, instant coffee and malted beverages.

The case of Reliance Industries is even more remarkable. It has presented information on business segments in which the group as a whole has interests. The problem with this approach is that the group's interest in petrochemicals and refining are held in two listed and independent companies. In the event the so-called segment report is merely a repetition of unsegmented and publicly disclosed information on sales and profits of Reliance Industries and Reliance Petroleum which has always been available to investors even in the pre-segment reporting era.

There is also a lack of harmony in disclosure among units in the same industry and across of all units with regard to common elements of performance. Some companies include investments along with other unidentified assets while other do not. For example, HLL included investments along with other unallocated assets, while ITC has indicated its investments separately.

In addition, companies in the same industry present data based on different segments. While Nalco provided segment information on `Alumina' and `Aluminium', Hindalco treated its entire aluminium business as one segment denying useful information to investors on contribution by upstream and downstream products.

The reporting practices of companies in the healthcare business vary widely too with bulk drugs and formulations or formulations under branded and generic product groupings being treated differently by individual companies.

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