Auditors qualify Ceat accounts

MUMBAI, Aug 28: The auditors of Rs 1,251 crore Ceat Ltd, belonging to the RPG group, have once again qualified the balance sheet of tyre ...

MUMBAI, Aug 28: The auditors of Rs 1,251 crore Ceat Ltd, belonging to the RPG group, have once again qualified the balance sheet of tyre maker Ceat Ltd on various issues like realisation and diminution of investments and recovery of interest-free loans.

In its report, auditors N M Raiji amp; Co said 8220;we are unable to express any opinion on the extent of realisability of investments in convertible debentures, deposits with companies and interest thereon aggregating Rs 45.37 crore8230; in view of the significant diminution in the networth of those companies and delayed realisation/non-realisation of interest.8221;

These investments include convertible debentures of Rs 11.61 crore for which conversion option, though available, has not been exercised. It may be recalled that the auditors had found several holes in its balance sheet in the previous year also.

The auditor has said the company has extended unsecured interest-free and interest-bearing loans to subsidiary companies wherein repayment schedules have not been stipulated. It may be noted that Ceat itself has taken loans of Rs 515 crore from institutions by paying normal interest charges. In fact, Ceat paid Rs 108 crore as interest charges for the year 1997-98.

The auditors have pulled up the company by saying 8220;in our opinion, the internal control procedures for purchase of stores, raw materials and components, plants and machinery, equipment and others assets for the sale of goods need to be strengthened so as to be commensurate with the size, spread and growing volume of operations of the company.8221;

Besides the parent company Ceat, auditors have also qualified the balance sheets of its subsidiaries as well. In the case of subsidiary Ceat Ventures Ltd, provision has not been made against 8220;certain unquoted companies in which the company has made investments/intercorporate deposit aggregating Rs 11.68 crore have a negative net worth.8221;

In Ceat Ventures, provision has not been made against diminution aggregating Rs 18.49 crore in the value of certain quoted investments. Also, provision has not been made against certain unquoted investments in which Ceat Holdings made investments of Rs 11.85 crore.

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When contacted, a spokesman of RPG Enterprises said 8220;the diminution in the value of these investments, which the auditors have commented on has been due to market forces, beyond the control of the company. Here one must appreciate that Ceat is not likely to sell these investments in the near future being as they are in the nature of management stake and has therefore not considered the depreciation in their value in the balance sheet at all.8221;

Ceat has been investing funds through its wholly-owned subsidiaries for various equity shares and debentures. Typically, this route was taken by many Indian corporate in the earlier days on account of the restrictive provisions in the Companies Act and MRTPC. 8220;In the post-liberalisation era8230; Ceat has taken cognisance of this fact and has already embarked on the process of reversing the earlier structure,8221; the RPG official said.

As per the balance sheet, redemption of 6,12,2197 12.5 per cent debentures of Rs 75 held by financial institutions has been deferred. 8220;Ceat was no exception to the recessionary trend in the economy which had affected many companies in the automobile sector. This situation created problems because some of Ceat8217;s major customers had outstandings of over six months and above. It was in this context that a reschedulement for a short term of 3 to 6 months was worked out with FIs,8221; the spokesman said about the loan reschedulement.