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Reports of the Employee Provident Fund Organisation (EPFO) alleging evasion of provident fund dues had the BL Kashyap stock tumbling by 20 per cent to hit its lower circuit on Thursday.
Company's rebuttal
The news comes at a time when the company was beginning to find its feet after a steep slump in 2009.
The EPFO has reportedly asked the construction company to pay a sum of Rs 593 crore by next week, massive in light of the company's cash position. The stock's market capitalisation is Rs.313 crore.
BL Kashyap refuted the EPFO claim for Rs 593 crore citing erroneous calculation, with multiple factors not taken into account. For instance, the company contended that since it uses sub-contractors, the onus for paying provident fund is on the sub-contractor and they in turn, have been meeting the dues on time.
It also argues that the break-up of the cost head ‘Wages and Benefits' was ignored while arriving at amounts due. The head included payments made to both skilled and unskilled workers as well as sub-contractors (with and without material payments), who have different levels of PF dues. BL Kashyap is countering the charge and is exploring legal recourse.
Squeeze on cash flows
Whether the EPFO's allegations are proved remains to be seen. However, the key concern for investors in the BL Kashyap stock is the shortage of readily available cash on the part of the company to meet these demands.
Combining cash and bank balance, and investments as of March, the company held about Rs 40 crore. It could raise funds through short-term debt, but this may cramp its working capital cycle, which had been slowly improving.
Further, with an overall debt-equity of 1.1 and an order book of over Rs 4,400 crore, it will still require substantial funds for operation. Interest costs have already jumped 92 per cent in FY-11, pressuring net profit margins.
For FY-11, the company clocked revenues of Rs 1,586 crore and net profits of Rs 49 crore. Uncertainty relating to prolonged litigation could also weigh on investor sentiment in the stock.
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