Infrastructure and IT were two sectors that were shunned by investors ten years ago primarily because the companies in these two sectors could easily fudge the numbers. Since then these two sectors have given the most fabulous returns to investors. Companies have grown at a terrific pace to attain unbelievably mammoth size, propelling growth all around. The Satyam fraud has opened a Pandora's box for the IT sector. Many more scams will get unearthed if the authorities were to look deeply.
Gossip in financial circles in Hyderabad suggests that the numbers in Maytas too may have been fudged by a huge margin. The reported turnover and net profit for the year ended March 2008 were Rs.18,739 million and Rs. 907 million. The grapevine has it that the actual numbers are far lower than this. We do not have a way to find out, but after Satyam, anything is possible. While here it may be a case of bogus turnover and profits, there is another scam of a different kind that may be lurking.
Most EPC contracts provide for a Mobilization Advance of 10-15%, which is paid at the time of the award of the contract. Look at the size of the contracts that are awarded these days - anywhere from a few hundred crores to a few thousand crores. The mobilization advance itself is a sizable amount. Many cash strapped contractors will now do anything to bid for new contracts at the lowest possible levels to win the contracts and lay their hands on the mobilization advance. By doing that they can defer their problems to a future point in time in the hope things will improve. This will be detrimental to the good quality players because they lose out on the opportunities.
Accounting irregularities are quite easy to manage for infrastructure companies. Cash transactions form a substantial part when compared with IT companies. Turnovers can easily be shown and so also profitability. Here again, our advice is to look for companies whose cash flow management has been superior to others. Look for companies that have low debt, normal receivables and a long history of integrity. None of these are difficult to check for the keen eye.
With Maytas too under close scrutiny, there is a good possibility of some scam being unearthed there too, which could play spoilsport for the entire sector. Unfortunately, there aren't any Infosys and TCS calibre companies here (other than L&T).
Vivek Bhargava
Gossip in financial circles in Hyderabad suggests that the numbers in Maytas too may have been fudged by a huge margin. The reported turnover and net profit for the year ended March 2008 were Rs.18,739 million and Rs. 907 million. The grapevine has it that the actual numbers are far lower than this. We do not have a way to find out, but after Satyam, anything is possible. While here it may be a case of bogus turnover and profits, there is another scam of a different kind that may be lurking.
Most EPC contracts provide for a Mobilization Advance of 10-15%, which is paid at the time of the award of the contract. Look at the size of the contracts that are awarded these days - anywhere from a few hundred crores to a few thousand crores. The mobilization advance itself is a sizable amount. Many cash strapped contractors will now do anything to bid for new contracts at the lowest possible levels to win the contracts and lay their hands on the mobilization advance. By doing that they can defer their problems to a future point in time in the hope things will improve. This will be detrimental to the good quality players because they lose out on the opportunities.
Accounting irregularities are quite easy to manage for infrastructure companies. Cash transactions form a substantial part when compared with IT companies. Turnovers can easily be shown and so also profitability. Here again, our advice is to look for companies whose cash flow management has been superior to others. Look for companies that have low debt, normal receivables and a long history of integrity. None of these are difficult to check for the keen eye.
With Maytas too under close scrutiny, there is a good possibility of some scam being unearthed there too, which could play spoilsport for the entire sector. Unfortunately, there aren't any Infosys and TCS calibre companies here (other than L&T).
Vivek Bhargava
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