Skip to main content

New Accounting Norms May Hit Cos Profitability

By
Pharma & tech sectors likely to be impacted the most, finds a study Come April 2016, investors may find it less tedious to compare earnings of listed companies with the new Indian accounting standard -Ind-AS -set to be implemented.
But, the transparency will come at a cost. Profitability of many companies could be impacted heavily because of the new rules.
A study by brokerage Ambit Capital of companies that are part of the Nifty shows that sectors such as pharma and technology along with conglomerates will be most impacted. Among companies, Tata Motors, Wipro and Dr Reddy's could see lower profits under the new accounting standards, said Ambit.
More than 500 listed Indian companies (comprising about 75% of the total market capitalisation) will adopt Ind-AS. Several consultants said investors and analysts may need to brace for sharp variations in earnings from what they had estimated.
“Next year many companies' results would look very different, as you would have different PE (priceto-earning) ratio, different debt to equity ratio and so on,“ said
Sandip Khetan, partner in a member firm of EY Global.“
One major impact would be felt on the method companies use to account for goodwill. After the new standards set in, Indian companies would have to calculate their goodwill on a fair value basis.
“For many companies the return on investment (RoI) would fall signifi cantly as their net worth would increase after their goodwill would be calculated on a fair value basis. So, while for some companies their goodwill would increase but return on investment would come down, now whether the company looks at this change as positive or negative is a matter of their perception,“ said Ashish Gupta, partner, Walker Chandiok & Co.
While all sectors would be hit by the Ind-AS, the implications could be more severe in some.
Companies with a lot of subsidiaries or even special purpose vehicles (SPVs) could see their net worth going down substantially.
“In a situation where the company has an SPV, where there is a private equity or strategic investor involved, who has a say in the operations of that SPV, it may be concluded that the control over that SPV is shared.And, therefore, the assets and liabilities of that SPV would not be consolidated in the company's balance sheet,“
said Sai Venkateshwaran, partner and head of accounting advisory services at KPMG.
The Economic Times, new Delhi, 22nd Oct. 2015

Comments

Post a Comment

Popular posts from this blog

RBI deputy governor cautions fintech platform lenders on privacy concerns during loan recovery

By
  India's digital lending infrastructure has made the loan sanctioning system online. Yet, loan recovery still needs a “feet on the street” approach, Swaminathan J, deputy governor of the Reserve Bank of India, said at a media event on Tuesday, September 2, according to news agency ANI.According to the ANI report, the deputy governor flagged that fintech operators in the digital lending segment are giving out loans to customers with poor credit profiles and later using aggressive recovery tactics.“While loan sanctioning and disbursement have become increasingly digital, effective collection and recovery still require a 'feet on the street' and empathetic approach. Many fintech platforms operate on a business model that involves extending small-value loans to customers often with poor credit profiles,” Swaminathan J said.   Fintech platforms' business models The central bank deputy governor highlighted that many fintech platforms' business models involve providing sm
Post a Comment
Read more

Credit card spending growth declines on RBI gaze, stress build-up

By
  Credit card spends have further slowed down to 16.6 per cent in the current financial year (FY25), following the Reserve Bank of India’s tightening of unsecured lending norms and rising delinquencies, and increased stress in the portfolio.Typically, during the festival season (September–December), credit card spends peak as several credit card-issuing banks offer discounts and cashbacks on e-commerce and other platforms. This is a reversal of trend in the past three financial years stretching to FY21 due to RBI’s restrictions.In the previous financial year (FY24), credit card spends rose by 27.8 per cent, but were low compared to FY23 which surged by 47.5 per cent. In FY22, the spending increased 54.1 per cent, according to data compiled by Macquarie Research.ICICI Bank recorded 4.4 per cent gross credit losses in its FY24 credit card portfolio as against 3.2 per cent year-on-year. SBI Cards’ credit losses in the segment stood at 7.4 per cent in FY24 and 6.2 per cent in FY23, the rep
Post a Comment
Read more

India can't rely on wealthy to drive growth: Ex-RBI Dy Guv Viral Acharya

By
  India can’t rely on wealthy individuals to drive growth and expect the overall economy to improve, Viral Acharya, former deputy governor of the Reserve Bank of India (RBI) said on Monday.Acharya, who is the C V Starr Professor of Economics in the Department of Finance at New York University’s Stern School of Business (NYU-Stern), said after the Covid-19 pandemic, rural consumption and investments have weakened.We can’t be pumping our growth through the rich and expect that the economy as a whole will do better,” he said while speaking at an event organised by Elara Capital here.f there has to be a trickle-down, it should have actually happened by now,” Acharya said, adding that when the rich keep getting wealthier and wealthier, they have a savings problem.   “The bank account keeps getting bigger, hence they look for financial assets to invest in. India is closed, so our money can't go outside India that easily. So, it has to chase the limited financial assets in the country and
Post a Comment
Read more