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Government's new norms exempt companies from disclosing output details in annual reports

The government has allowed companies to do away with the need to disclose quantitative information long considered vital for investors making informed forecasts about a company.

Last Updated: Aug 30, 2012, 05.17 AM IST|Original: Aug 30, 2012, 05.07 AM IST
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The government has allowed companies to do away with the need to disclose quantitative information long considered vital for investors making informed forecasts about a company
The government has allowed companies to do away with the need to disclose quantitative information long considered vital for investors making informed forecasts about a company
MUMBAI: If you want to know the amount of cement produced by a company or the number of cars an automobile firm made last year, the chances are you will not find it in the companies' annual report this year.

The government has allowed companies to do away with the need to disclose such quantitative information long considered vital for investors making informed forecasts about a company.

The revision to Schedule VI of the Companies Act - which stipulates the format for financial statements and balance sheets of companies - has exempted disclosures on installed capacity and production statistics of manufacturing companies to align reporting norms with global standards.

The norms notified in March 2011 by the ministry of corporate affairs have been made applicable from the financial year April 2011. Typically, annual reports for 2011-12 are made available at least a month before the annual general meeting of a company, which is convened by August for companies with financial years ending in March.

The exemption comes at a time when cement companies are contesting a Competition Commission of India order that accuses the companies of cartelisation. The CCI is also probing similar allegations on tyre companies.

"It is a retrograde move that does away with something which the market is already used to over the decades," said Institutional Investor Advisory Services managing director Amit Tandon. "At a time when corporate disclosures are increasing and getting mandatory, this is step backward."

"These (the old) requirements date back to the era when there was industrial licensing and there was a regulatory purpose in monitoring quantitative aspects of production. Their relevance in the present economic and regulatory environment has been re-assessed," said the ministry of corporate affairs notification SO 653 (E).

"Such disclosures are not required in other countries. Indian companies have represented that such disclosure puts Indian companies at a competitive disadvantage where their details are known to foreign competitors, but they cannot get the details from the other side."

A review of the annual reports of leading companies for financial years 2010-11 and 2011-12 shows that most companies have fully adopted provisions of the revised Schedule VI, to share lesser information with investors than before. Fifteen of the 20 manufacturing companies in the S&P CNX Nifty, accounting for 42% of the free-float market capitalisation, have opted not to disclose the details.

The remaining five voluntarily continued to provide details. They include Hindalco, ITC and Grasim Industries.
 


"India Inc with a few exceptions seem to have consciously taken the decision to be less transparent in its annual reports as far as quantitative disclosures are concerned, apparently since the new regulations permit the same," said Nitin A Khandkar, founder Nitin Khandkar Institutional Research.

"While the revised schedule VI is a move towards convergence with IFRS, many crucial data like revenue, raw materials, purchases, capacity, calculation of managerial remuneration have been dispensed with. Such information is crucial to all investors and progressive companies should not discontinue making disclosures," said Shriram Subramanian, founder and managing director of InGovern Research Services, an institutional advisory,

When companies are moving towards reporting their intangible assets like human capital, brand valuation, they should not discontinue reporting tangible metrics relevant to their industry, Subramanian said.

The automobile industry stood out in these disclosures, with 2 of the 5 companies in the Nifty giving full details of their production and capacities. While Hero MotoCorp provided full information on installed capacity and sales, Mahindra & Mahindra has only disclosed the sales numbers. Tata Motors, however, has not disclosed any quantitative information and neither has Cairn India.

Of the five metals and mining companies, only two companies, Sesa Goa and SAIL, have made full quantitative disclosures. SAIL has not published its annual report for 2011-12, though it has made disclosures on its website. ITC and Hindustan Unilever have not made any quantitative disclosures.

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