Investors must keep an eye on consolidated nos

Consolidated Financials, Not Standalone Figures, Are Gaining Significance As More Cos Are Operating Through Arms

    Indian companies have been chasing growth through large acquisitions, and diversifying through subsidiaries. That shows up only in group financials. Consolidated performance includes the results of all subsidiaries, joint ventures and investments in associate companies. Its importance is evident from the impact it has on performance for some companies. In the case of Amtek Auto and Aditya Birla Nuvo, consolidated sales are more than 200% that of standalone, 600% in case of EID Parry, 301% for Godrej Industries, 107% for M&M, 281% for Tata Tea and 567% for Tata Steel. Our sample shows 68 companies with combined revenues twice that of standalone. It is not surprising to see many mid-sized companies in the list, as many of them have been active on acquisitions. In our sample, there are around 150 companies with sales below Rs 1,000 crore and with group sales at more than 10% of standalone sales.

    ADITYA Birla Nuvo's Q1 results on Monday would normally have cheered shareholders: in turbulent times like these, standalone revenues were up 38% and net profit rose 23%. But the scrip still fell 6%, possibly due to dismal consolidated numbers. Group revenues grew 48% but were accompanied by a loss of Rs 28.3 crore. Losses in the life insurance business and lower profits in telecom and garments dampened the performance. For automobile major Mahindra & Mahindra, it was the other way around. First, the newtickers flashed a 26% jump in standalone revenues but a 17% decline in profit. However, the consolidated results announced later, showed a 36.5% growth in net profit. The stock, which had slipped after the first numbers were out, closed the day 2.7% higher.
    These are but two instances of how consolidated financials can dominate the corporate landscape. Investors, therefore, need to analyse consolidated numbers closely before making investment decisions. It will impact all profit and loss and even balance sheet ratios. Tata Steel, for example, quotes at a price to earnings (P/E) multiple of 4 or 10 times, using consolidated and standalone FY08 financials, respectively. Now, that can make all the difference between a 'buy' or 'sell' decision.
    The gap between standalone and consolidated numbers is fast widening. In FY08, consolidated revenues at Rs 1,719,229 crore were 23% higher than standalone sales. Two years ago, the difference was just 11.1%. Profits were higher by 12% at Rs 180,191 crore compared with 7% in the same period. If we exclude oil companies, banks and Tata Steel (whose sales shot up from Rs 25,000 crore to Rs 138,779 crore after the Corus acquisition), the percentages still do not change much. That shows the breadth and depth of the change underway.
    Annual numbers give a more accurate picture since all companies do not report quarterly consolidated results. For example, both L&T and Hindalco reported just standalone financials for Q109. It is mandatory to announce both standalone and consolidated results at the end of the fiscal.