The Hindu Business Line : Financials to flip through

Wipro Infra acquires Swedish Co Hydrauto. Thus reads a headline in the day's news. To know more about Wipro's recent deals, a good source is Ready Reckoner of Leading Listed Companies, from Global Data Services of India Ltd (gdsltd@crisil.com).

The book speaks of the merger of Spectramind in July 2005, acquisition of brand name `Chandrika' in June 2004, transfer of investments in Wipro Nervewire to another US subsidiary a few months earlier to that, and the purchase of Glucovita brand from HLL in April 2003. All these presented in about three pages that also pack in a wealth of information about Wipro; such as, financial snapshot, indexation of key numbers to effect a common size, cost analysis, key ratios across three years, and more.

Billed as `investors' guide to financial data of 225 actively traded companies', the book scores by providing data in `a standardised format that is simple and easy to understand'. Writes Madhu Dubhashi, CEO of GDSIL in the foreword: "The book is targeted at investors, who can look at the numbers at leisure, away from computer screens, by simply flipping through pages of the book. The book is also recommended for students to help them get a bird's eye view of India's largest companies, before they enter the real world of finance."

A common confusion with analyst figures is that they are often at variance with the reported results. This happens because of adjustments that analysts usually make to ensure that the numbers are comparable. The book steers clear of this problem by giving the reported numbers, and sharing insight through `accounting alerts'. Such as, stating in the case of Asian Paints that the company adjusted an impairment loss of Rs 45 crore on fixed assets against general reserves, in 2004-2005. And that Britannia set off `unamortised balance of intangibles of Rs 21 crore' against `opening balance of general reserve'.

Movement in margins

Profits as a percentage of operating income is an indicator of the movement in margins over the years, explains the intro. And the movement can happen both ways. Take, for instance, Divis Labs. Its PBT (profit before tax) as a percentage of operating income has been declining from 32 per cent for the year ended March 2004 to 28 per cent in 2005; and 27 per cent in the YTD (year to date) December 2005.

On the other hand, Engineers India has been showing good progress during the same period — from 10 per cent to 18 per cent, and further to 23 per cent. "Operating PBT as a percentage of PBT gives a good indication of the level of contribution by the core activities of a company to its profitability and, thereby, its stability," reads further gyan from GDSIL. Story of Tata Teleservices (Maharashtra) is a loss, though. Its March 2005 PBT was a minus, Rs 528 crore, and the OPBT was again a negative, a bigger one, at Rs 564 crore. There can be mixed signals, such as in Ultratech Cement. OPBT for the period ended March last year was Rs 40 crore, while PBT was a loss of Rs 34 crore.

How does indexation help? The book explains: "Indexation of cost and profit figures over the 3-year period gives a bird's eye view of trends, along with indexation of operating income." This can be a revealing analysis. For example, one notices that Glenmark Pharma's `power & fuel' expenses have more than doubled consistently, from 100 in 2003 to 253 in 2004, and to 548 in 2005. Not so in the case of Dr Reddy's Labs, where the march of power and fuel has been gradual in the same period, from 100 to 108 and 113. Index of employee cost shows a doubling in Satyam, from 100 in 2003 to 204 in 2005. On the contrary, Maruti's indexation depicts a decline, from 100 to 92.

Cost analysis in the book can be of immense value to discerning readers. It depicts `key direct costs as a percentage of OI or operating income'. Increasing percentages indicate inefficiencies or increasing input costs, guides GDSIL on interpretation.

Employee cost, for example, is at 5 per cent of OI in HCL Infosystems, while in Infosys, it is almost ten times that much — 50 per cent in 2004 and 46 per cent in 2005.

Finance cost for Infy has been at 0.02 per cent of OI, for the last three years, but Jaiprakash Associates has this metric at more than 10 per cent. Sterling Biotech too has a high finance cost to OI percentage, ranging from 11 to 20.

Compulsory addition to the investors' portfolio of books!

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