MUMBAI, May 16: CRB Capital Markets' liquidity problems were clearly evident from the company's cash flow statement for the year ended March 31, 1996.

During 1995-96, the company managed a negative cash flow of Rs 88.63 crore from operations, a further fall over the previous year's negative cash flow of Rs 79.24 crore. In short, the NBFC was bleeding cash.

In 1995-96, this reached epic proportions. The negative cash flow from operations was compounded by further negative cash flow from investing activities, compensated to some extent by proceeds from the issue of share capital (Rs 100 crore) and issue of debt (Rs 57 crore). In 1994-95, too, proceeds from inflow of share capital (Rs 146 crore) and debt (Rs 162 crore) managed to show a positive cash flow. In 1995-96, however, total cash flow was negative to approximately Rs 66.64 crore.

The latest available annual report (1995-96) makes interesting reading. The total income increased from Rs 100.78 crore in 1994-95 to Rs 129.23 crore in 1995-96, an increase of Rs 28.45 crore. During the same period, debtors increased by Rs 26.74 crore.

The ratio of debtors to income has increased from 4.5 per cent as on March 31, 1995, to 24.25 per cent by March 31, 1996. This indicates that the company has not been able to recover its dues. Debtors outstanding for more than six months increased from Rs 0.5 crore to Rs 5.01 crore.

Another interesting item is the inventory. The portfolio of shares and debentures shown under this head has gone up from Rs 6.41 crore to Rs 36.52 crore. As a percentage of income, inventory of shares and debentures increased from 6.36 per cent to 28.26 per cent. The inventory has been valued as is the practice at cost or market value, whichever is lower.

By doing this, the company managed to put all its good shares in its stock-in-trade, where they would be valued at cost or market value, whichever is lower. On the other hand, all the dud shares continued to be in the permanent investment category, where they are valued at cost, and market value is disclosed only be way of a footnote. These facts only go to show that the company had a massive dud portfolio at the end of the year.

By March 31, 1996, the company had Rs 109.34 crore worth of investments, compared with Rs 76.70 crore at the end of the previous year. However, the market value of these investments as on March 31, 1996, was Rs 77.84 crore, a shortfall of 29 per cent. Several of these investments, if sold now, would yield a paltry amount.

It is difficult to comprehend why the company invested in scrips such as Kiev Finance, Citizen Yarns, Bentoll Chemical Products, Dowell Leasing, Doogar & Associates, Natural Expo Agro-Industries, and very large amounts at that. This is in addition to the huge amounts invested in group companies. The NBFC also hiked investment in group companies by Rs 7.95 crore and in the CRB Arihant Mangal Scheme by Rs 12 crore.

Total investment in group companies and the group mutual fund amounted to Rs 38 crore as at end-March 1996.

During the year, the company made an investment of Rs 47.50 crore in buildings. The cost of owned buildings till the beginning of the year was Rs 3.04 crore. It is anybody's guess as to why such massive investment in an unproductive asset was required at a time when its cash flow was under severe strain. Incidentally, rent, rates and taxes paid increased by Rs 0.39 crore to Rs 1.12 crore. The interest during the same period increased by 235 per cent to Rs 29.72 crore.

In 1995-96, the income tax department conducted a search and survey u/s 131 of the I-T Act and the company provided for a tax liability of Rs 4.2 crore. In the same year, deposits of the company increased from Rs 48.22 crore in 1994-95 to Rs 139.83 crore. The credibility of the management was for all to judge when the company declared its annual results for 1995-96.

In the rights-cum-public issue of December-January 1996, the company had projected a net profit of Rs 109.72 crore but managed to achieve only Rs 52.32 crore. It is impossible to believe that management itself was not in a position to take a view on the profitability of the company for next four months. It is obvious that the projections were made solely for the purpose of getting the issue subscribed.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.