Corporate Subterfuge: Idea Cellular

6.11.10

Like all Indian owned companies, Idea too controls a number of subsidiaries-some of the underlying mathematics of these inferior siblings makes no sense on the face of it. Take for example its 100% subsidiary Aditya Birla Telecom, a privately held company. Idea's equity investment in this subsidiary totes up to Rs 16.3 bn which works out to a purchase price of Rs 1633 per share of Rs 10 each face value. This would appear to be an expensive piece of acquisition and, Idea gets not a dime as dividend from this deadwood sibling. But let that be. The paid up capital of this subsidiary is shown as Rs 119 m, though Idea's investment in this subsidiary as per its books works out to only Rs 100 m at face value. But let that also be. Idea has very 'craftily' merged only the telecom operations of the subsidiary with it. The subsidiary is now left holding some nuggets, or so it appears. The subsidiary has zilch revenues but it has investments to the tune of Rs 73 bn - being investments other than investment in subsidiary. What exactly are these goofy humungous investments, and why do they not yield any returns please? Eureka, it also appears that these investments have come for free! The sibling boasts equally hefty reserves of Rs 73 bn. The exact nature of these reserves is not known, and it did not get merged with the parent for reasons best known to the parent. Why do managements resort to such abysmal subterfuges?

Or take the example of another subsidiary Idea Cellular Towers Infrastructure. Idea has invested Rs 0.5 m in the equity of this sibling and then transferred assets worth Rs 16 bn to it. It appears that this subsidiary has got these assets for free from the parent as the only corresponding entry on the liability side of the balance sheet is a figure of Rs 15.7 bn, shown under reserves. This is truly fantastic by any yardstick. It recorded a negative profit of Rs 332 m on a turnover of Rs 1.6 bn for the latest accounting year. How it managed to repay a loan of Rs 710 m advanced to it by the parent in the face of these dismal results is not known. One wonders what the figures are like for its joint venture, Indus Towers, to which it has advanced dollops of credit.

Courtesy: Equitymaster.com