Welcome to Hampi ! Travel Guide by SP Jain & Ashok Jainani

The royals and subjects of Vijayanagara and the vaanarsena (of Lord Hanuman) are not there to receive you. But some of their symbols and motifs do stand even today inviting travelers to come, explore and be amazed; the rocks and breeze gesticulate that a lot more fascinating facts may be buried beneath the ground.

Hampi, the capital city of the fourteenth century Vijayanagara empire in Southern India and its vedic connection with Kishkindha, the monkey kingdom in Ramayana, is charismatic even in its ruined state today. The city of victory, a city in ruins, India’s architectural legacy spread over 25 square kilometers is a world heritage site that every year attracts thousands of visitors from throughout the country and abroad. You need to stay there for a few days to appreciate its majestic glory.

Many of the noted foreign travelers and Indian scholars, for seasons together, have been exploring the form and purpose of the remains of the standing buildings, stone edifices and original appearance of the recently excavated structures for which only the basement blocks survive. One can only speculate for that part of Hampi’s vast invisible archaeological heritage still buried beneath the ground which can keep the researchers and scholars occupied for years and perhaps decades to come.

We were greeted by joyous feelings on the warm welcome received by the fresh air, clear sky and friendly ground staff when our fully packed 78-seater aircraft, Bombardier-Q400, touched down at the small airport at Belagavi (Belgaum) at 4.30 on a Thursday evening in the month of August. Hospet-based industrialist and our extremely warmhearted host Shri Narendrakumarji Baldota had sent chauffeur-driven car for our 270-km onward journey by road to Hospet, buzzing and humming, the gateway town 12 km ahead of Hampi. Hospet is home to many steel and engineering industries. Baldotaji’s business spans mining, gases, shipping and wind energy and he is also a noted philanthropist in town having many charitable projects to his credit.

Luckily, skies were clear the next day as well with pleasant temperature and we started early morning for exploring the vast stretches of boulder-strewn hills that make the backdrop of Hampi unique. “Dotted around the hills and valleys are 500 plus monuments,” our guide Mr Basavraj told us. It’s like an open air museum in natural setting. At every turn there is a surprising stone structure. Every monument appeared hiding many stories that people might be eager to hear. Among them are beautiful temples, ruins of royal palaces, remains of aquatic structures, ancient market streets, royal pavilions, fortifying rock walls... the list is practically endless. The entire town has a sort of mythical aura surrounding its environment. You would notice something spooky the moment you set foot on Hampi that used to be an important part of Vijayanagara city (1343 – 1565), which was later ruined but this beautiful place commonly referred as the temple town still exists.

We started our exploration from the epicenter of Hampi, the Vittala Temple, the most extravagant architectural showpiece of Hampi. One needs to be there, see, feel and contemplate on the spectacle as written and spoken words are bound by limitations of narrator. The temple named after one of Lord Vishnu’s name, is built in the form of a sprawling campus with compound wall and gateway towers. There are many halls, pavilions and temples located inside this campus. “The temple was originally built in the 15th century AD. Many successive kings have enhanced the temple campus during their regimes,” Mr Basavraj informed. You can even see the remains of a township called Vittalapura that existed around this temple complex. The highlight of Vittala temple is its impressive pillared halls and the stone chariot.

On the east of the temple entrance stands a chariot-like stone structure with pairs of wheels on the sides and a small Garuda shrine with exquisite cut-out colonnades above. Two free-standing mandapas are seen near the Garuda shrine. The mandapa was used to display the processional image of the god carried in a chariot that was pulled up and down the street.

This campus houses a hall perhaps dedicated to music performance in the ancient times. Some of the pillars produce musical instrumental notes when tapped with fingers. Our guide tapped his fingers on one pillar and we could hear “tabla” sound from another pillar. One needs to physically go there and experience this marvel.

Our guide informed that Hampi’s architecture is as stunning as the ambient in which it was built. Richly sculptured hard granite structures that dominate the ruins present a fusion of various types of architectures. For example, the civilian structures made in the Indo-Saranac are pleasant blend of Hindu and Islamic styles of architecture. The large Hindu temples were made in the typical Vijayanagara style with giant carved monolithic pillars.

Hanuman temple atop Anjaneya Hill is located about 4km away from the heritage site and is considered to be the birthplace of Lord Hanuman.

Our guide told us that this Empire had own sophisticated coinage. It is believed that one of the mints of the empire was in Hampi, the capital city. Typically, one side of the coins spot images of gods, birds, animals and inscriptions of who ordered to mint those coins on the reverse side.

The Lotus Mahal which dominates the zenana enclosure is one of the best-preserved structures in the royal centre. In spite of its fanciful name, this building probably served as a council chamber. Watchtowers, built in a similar manner, are seen in the southeast corner of the zenana enclosure and in the middle of the north wall. These also employ temple-like eaves and towers in combination with sultanate-style pointed arches and interior domes. A third tower at the northeast is now partly ruined. Other features within the enclosure include a deep tank for water storage, the remains of a rectangular granary.

A modest opening in the east wall of the zenana enclosure leads to a spacious plaza, probably used as a parade ground for troops. This is overlooked from the east by the elephant stables, a long line of eleven chambers each of which could accommodate two elephants.

After the Queens’ bath, the main road passes through a crudely reconstructed gateway that reaches on the outskirts of Kamalapura, mainly of interest for the Archaeological Museum. The Pattabhirama temple, besides the road, is about 600 metres from the museum. A 100-columned hall, now damaged, is built up to the south wall of the spacious enclosure.

Along the road to Talarighat, the monument of interest to be noticed is the Ganagitti Jain temple, one of the largest early edifices at the site. An inscription of 1385 on the lofty dipa-stambha in front records that the temple was built by Irugappa, a general of Harihara II.

The riverside gorge just north of the Kodanda Rama Temple is remarkable for various clusters of ruins.The sought after ones are the array of Shiva Lingas carved on the flat rock surface and the carved Anandashayana Vishnu on the rock cleft.A little exploration of this area, close to the edge of the river, can lead you to a couple of Shiva Lingas arrays carved on the surface of a flat rock. One is an array of 108 Lingas, the other a more fabulous 1008 lingas in a square area.

According to internet statistics,Hampi is the most searched historical place in Karnataka. The historical town of Hampi is a great place for visitors to have a glimpse of the long lost Vijayanagara Empire. Welcome to Hampi !

Riding a unicorn

With 100 mn users and counting, Mittal hits the right notes with his third app

                                                       Kavin Mittal

                                          CEO & Founder of Hike Messenger

Hike, the messenger app, is the latest Indian Unicorn: it has raised $ 175 million from its existing shareholders, Bharti SoftBank and Tiger Global, and new investors, Tencent Holdings of China and Foxconn of Taiwan, at a valuation of $ 1.4 billion.

Kavin Mittal, the 28- year- old founder and chief executive of Hike, wants to use this money to make the app smarter. Features like e- commerce and news could get added to it in the days to come. This, Mittal would hope, will help him take on the onslaught from WhatsApp and Facebook Messenger.

Like his father, Sunil Mittal of Bharti Airtel, Mittal is a fast talker and can mix macroeconomics with consumer behaviour and corporate balance sheet with consummate ease. Both believe in scale and leveraging the consumer for growth. And both are tech savvy.

Actually, Mittal has had a way with technology from an early age: at 15, he was writing software code.

In 2006, during the first year of his undergraduate course at Imperial College, London, Mittal helped McLaren Racing, the British Formula One team, embed a technology that would show the track flags on the steering wheel. The highlight of the assignment was a meeting with an upcoming driver named Lewis Hamilton.

Apart from technology, speed thrills Mittal. As a child, he had racing simulators fitted at home. Later, he was a member of the go- kart team at Imperial College. ( He was also in its cricket team.) In 2007, Mittal did his summer internship at the Google headquarters in Mountain View, California, and was impressed with its informal work culture.

And the next year, Mittal interned with Goldman Sachs in London. At the end of it, he decided that he would do any other work but become a banker “because the learning curve plateaus after a while”.

While at Goldman Sachs, Mittal founded his first start- up, AppSpark, along with classmate Namit Chadha to make apps for the Apple iPhone.

The first app they launched, in the middle of 2009, was called Movies Now. It would list all shows and feature trailers. In the US, users could even buy tickets on it. And based on your location, it could tell you which theatre was the closest to you.

The app was downloaded almost 500,000 times. Mittal then planned to give it another feature which would help theatres sell vacant seats at a discount one hour before the show. He even pitched the idea to PVR in India but there weren’t too many takers — the app was put on the shelf.

Mittal next came up with an app called Foodster which told people whenever they went to a restaurant what was popular there. This it did by converting online comments into scores. “ But the algorithm ran into trouble when it came to comments like ‘The lemonade is better than my girlfriend’s kiss’,” Mittal said in an interview in early 2015. Foodster met with the same fate as Movies Now.

By 2011, Mittal knew that he had to do something that was of more value than just movies or food. Growing up, he had seen how mobile telephony had changed lives in India. He decided that he would do the same in the mobile internet space in India.

He relocated from London, leaving his course for a private pilot’s licence midway, to New Delhi, and started work on Hike in early 2013, and rolled it out towards the end of the year. To attract youngsters to Hike, Mittal introduced features that hid personal chats from parents. Stickers were customised for local markets: those available in Mumbai were different from those in Patna. A range of coupons was made available to users.

Hike has over 100 million users, who, on an average, use it for 120 minutes per week. “ That makes it one of the top five apps in the country,” Mittal says with barely concealed pride.

The new investments are meant to give Mittal the wherewithal to close the gap with the market leaders. In addition, he hopes, Tencent and Foxconn will give him vital strategic inputs. “ Tencent runs the extremely popular messenger service WeChat in China which has half a billion users, and Foxconn’s knowledge of software, especially Android, on which India runs, is tremendous,” says Mittal.

The two investors were identified and inducted into Hike by Mittal. Tencent had launched WeChat in India, with limited success, in 2011; Mittal says he had been in touch with the company since then. Similarly, he had several meetings with the Foxconn brass which came to India regularly in search of investment opportunities.

In the early days, Hike was often called a Bharti Airtel app. Today, the users are spread across service providers and more or less reflect the market shares of the incumbents. Almost 75 per cent of our users are non- Airtel subscribers,” says Mittal. The big question is, will Hike be picked up by the subscribers of Reliance Jio, which wants to launch soon and has locked horns with incumbents like Airtel? “ Absolutely yes,” says Mittal.

Watch this space.

What monetary transmission means: Abheek Barua

Reducing policy rates is not enough. The key is to ensure banks lend to credit- constrained borrowers

If there is a single blot on the otherwise unblemished track record of Reserve Bank of India ( RBI) Governor Raghuram Rajan, it would be his inability to ensure smooth “ transmission” of RBI’s policy signals to actual lending rates in the economy. While the central bank has lowered the signal repo rate by one- and- a- half percentage points, banks have reduced lending rates by less. It is perhaps legitimate for the governor to claim that he is hardly to blame for this, that he has done his bit and the ball has always been in banks’ courts. However, the effectiveness of monetary policy is ultimately about RBI’s actions translating into reduced EMI’s on mortgages and car loans, lower credit card rates, cheaper working capital and so on. Thus, transmission of RBI policy is agauge of how well monetary policy as a whole has worked in stimulating the economy. If it hasn’t quite done the trick, the central bank must take some responsibility for it.

Mr Rajan’s predicament was partly because of the monetary policy regime that he inherited. Around 2010 when D Subbarao was at the helm, RBI decided to change the monetary regime it operated in. Previously, the central bank allowed episodes in which banks were short of liquidity ( thus, borrowing from RBI through its repo window) and those in which they were surplus ( parking surplus funds with RBI at the reverse repo rate). The new regime was one in which they there would be a “ permanent” or “ structural” liquidity deficit of roughly one per cent of banks’ deposits, ensuring that banks would always be net borrowers at the central banks refinance window.

This shift in regime, coupled with the fact that the actual liquidity deficit often exceeded the target, introduced an element of uncertainty about their fund position that kept bankers on edge. Thus, it wasn’t surprising that banks wanted to ensure that they had enough deposits to fall back on. Deposit rates remained sticky. Banks run on commercial principles and attempt to maximise the margin between lending and deposit rates. In the absence of significant deposit rate reductions, lending rates did not change much.

                                   Abheek Barua

Mr Rajan finally addressed this problem in the April 2016 monetary policy by reverting to the old regime, and committing to maintain aneutral liquidity regime. This meant plugging the “ structural” deficit by infusing liquidity both through bond purchases ( buying bonds from the market and offering cash in exchange) or by buying dollars in exchange for freshly minted rupees. Critics would claim that RBI could have done this much earlier to give the economy a helping hand instead of laying the blame on banks’ shoulders. A more charitable view is that a major systemic change of this sort takes time, especially with inflationary pressures ( traditionally associated with high liquidity) looming in the background.

Even if banks were to fall in line in this new regime, that might not be the end of RBI’s problems. A recent paper by Johannes Stroebel and three of his colleagues (‘ Do Banks Pass Through Credit Expansions? The Marginal Profitability of Consumer Lending During the Great Recession’, August 2015, New York University Working Paper) points out that transmission is likely to boost the economy only if banks pass on the benefits of monetary or credit expansion by the central bank (like a cut in the policy rate) to credit- constrained borrowers, those with ahigh marginal propensity to borrow. These borrowers, freed from their credit constraints are likely to spend more. Increasing the supply of credit to those who already have ample funds does not give the economy a cyclical boost. Trying to lend to borrowers who already have enough cash is somewhat pointless — if they wanted to spend more, they would have already done so.

Mr Stroebel and his colleagues examine the impact of a reduction in the cost of funds for 8.5 million credit card holders in the US between 2008 and 2014. They find that banks were least willing to increase credit limits for those who wanted to borrow the most, and most eager to lend to those who were not interested in borrowing at all. This apparently strange pattern has a simple explanation — the marginal propensity to borrow is inversely related to the risk- score (FICO scores) of borrowers. Credit constrained borrowers are the riskiest and while they provide a ready market for loans, high default rates actually erode banks’ profitability.

Mr Stroebel and his colleagues claim that this disconnect between the marginal propensity to borrow and the marginal propensity to lend of banks is why the attempt to expand credit, or more generally monetary policy, has not been effective in fighting the recession in the US that followed the great financial crisis. Their work does not have lessons only for the American credit card market or the US economy. The findings have implications for all credit markets, both retail and corporate. I would find it particularly relevant for India. With default rates and stressed loans already high in the system, banks would be perfectly justified (as a rational business decision) not to lend to those firms that are strapped for credit, desperate to borrow but likely to find it difficult to service loans. Going by RBI data, there has been a noticeable drop in credit disbursed to small and medium enterprises over the past few months. While some of this could be explained by the lack of demand for funds, banks’ reluctance to lend has also been a factor.

Monetary transmission in the sense of getting policy rate cuts to actually impact on the economy is not just about persuading banks to lower their benchmark lending rate in tandem with policy rates. They might just comply now that RBI is willing to keep liquidity neutral; whether they will actually lend to the ‘ right’ borrowers in the current economic environment is another story. Mr Stroebel’s paper shows that India will not be alone in finding out that monetary policy is somewhat weak in propping up a sagging economy. Fiscal policy, anyone?

Make corporate governance a common cause: Amit Tandon

Both companies and investors need to focus on corporate governance to promote the health and well-being of companies

Amit Tandon

In America, the 5,000 or so public (or listed companies) account for a third of the employment and half of the capex. If the US is to continue to sit at the high table “(we) think it essential that our public companies take a long- term approach to the management and governance of their business (the sort of approach you’d take if you owned 100 per cent of a company)”. Clearly the health and well- being of listed companies is important for nation building.

With this objective, the chief executive officer (CEO) of some of the largest asset management firms (Blackrock, Capital, Vanguard, State Street, J P Morgan Asset Management and T Rowe Price), a public pension plan (CPP), an activist investor (ValueAct), as well as a few CEOs of some large publicly- owned companies (J P Morgan Chase, Berkshire Hathaway, GE, Verizon and General Motors), last month presented aseries of corporate governance principles for listed companies, their boards and shareholders. Called the “Commonsense Corporate Governance

Principles”, [www.governanceprinciples.org] these are a “framework for sound, long- term- oriented governance”.

Most noteworthy about this exercise is companies and investors coming together to jointly focus on governance. For long, markets have assumed that since corporates need to adhere to these, they alone are responsible for their drafting and implementation. But companies need money that investors have, and investors need well- governed companies to invest in.

The applicability of the principles spelt out here is universal and not in any way linked to the regulatory framework.

While parts of it are US- specific, for the most part these principles can be applied everywhere, including in India, as these are not overly prescriptive in how to achieve goals. An example: A company should not feel obligated to provide earning guidance — and should determine whether providing earning guidance for the company’s shareholder does more harm than good.

In the US, management and ownership generally tend to be separated. As aresult, the dialogue between a company’s shareholders and its management is through the board. Consequently, three sections in the document deals with the board: Board of directors — composition and internal governance, board of directors’ responsibilities and later in the document, board leadership (including the lead independent director’s role). These talk about not just the composition, election, compensation and effectiveness of the board but also about its responsibilities focusing on the directors’ communication with third parties and setting the board agenda. In India, as owners tend to manage their business, the focus on the board is relatively low. However, companies and shareholders are doing themselves a large disservice by not holding Indian board sufficiently accountable.

The other items included are:

Shareholder rights: This deals with proxy access and dual class of shares. I have written about dual class shares earlier for this newspaper (“Governance norms: Direction or diktat”, July 21). While the document highlights that dual class is not the best practice, it recognises that there might be circumstances when such shares have to be issued. In such situations, it’s desirable to insert triggers when dual shares will cease to exist. It makes a strong case for all shareholders to be treated equally in any corporate transaction — a clear reminder that there is no place for payment of non- compete fees.

Public reporting: This focuses on transparency around financial reporting but also encourages commentary around long- term goals being “disclosed and explained in specific and measurable ways”. One of the strengths — and possibly, weakness as well — of the Indian corporate sector is family ownership, which enables owner- mangers to take a generational view of their business.In this context, the recommendation that a company should take a “longterm strategic view, as though the company were private” should resonate with corporate India.

Given that listed companies fall under the tyranny of quarterly reporting, in a separate missive the group has questioned the need for quarterly reporting: but corporations still have some way to gain unbridled investor trust in India, so it’s not certain how this one will go down.

Succession planning: Clearly, this is one of the most important decisions the board will take. Unfortunately, the principles enumerated here are sketchy.Nevertheless, the lesson for Indian companies is that boards need to continuously plan succession. More so, because most companies in India are ownermanaged, boards tend to have a dynastic approach that tends to favour the bloodline. Indian boards need to learn from their global counterparts and prepare for eventualities, including protecting the company from its owner.

Compensation of management: There are some interesting points regarding CEO compensation. First, that a substantial portion, that is 50 per cent or more, should be in the form of stock options or their equivalent; second, that these should be made at a fair market value or higher, with “particular attention given to any dilutive effect of such grants on existing shareholders”.In India, while owner- mangers do not get stock options, they often forget their wealth is tied to their shareholding in companies and extract huge salaries for themselves. Regarding ESOPs to employees, the prevailing trend is that if the share price has fallen, the exercise price needs to adjust: this only goes towards protecting the downside risk of employee wealth and does not become an incentive for value creation. Independent directors are ignoring that shareholders are starting to vote against egregious pay and ESOP re- pricing, leading to these getting voted down and red faces in the boardroom.

Given their ownership of business, asset managers’ role in corporate governance is now critical. They have the ability to influence behaviour and shape outcomes. Therefore, asset managers must act thoughtfully. They must be proactive and raise issues with companies as early as possible, and be constructive in their approach.

Considering the heft of the institutional investors signing on these recommendations, Iexpect theseto gain currency across all markets, including India. And, in adopting them we, too, can hope to achieve what the signatories expect in the US. “(Our) effort will be the beginning of a continuing dialogue that will benefit millions by promoting trust in our nation’s public companies.

Milk powder exports may pick up on rise in global prices

Further 4-5% price rise to make exports viable, say Amul, Parag Milk Foods

As global dairy prices see an uptick (nearly 17 per cent) in the past four weeks or so after hovering at historically low levels for much of 2016, Indian exporters feel exports of skimmed milk powder (SMP) might become viable in the short term.

           

In August 16 auctions, the average SMP prices were around $2,028 a tonne in the Global Dairy Trade (GDT), an auction platform for internationally traded commodity dairy products. It is a three per cent rise from the prices in the previous auction. GDT auctions are held twice a month. Prices had started showing signs of recovery since June, after a long period of dull prices. In the June 1 auctions, prices had moved up by about 12 per cent to touch $1,867 a tonne.

Currently, as domestic prices of SMP is about 20 per cent more than the international prices of around Rs 155-160 a kg, exporters feel India is not competitive to export SMP. Major players such as the Gujarat Cooperative Milk Marketing Federation (GCMMF) that had exported around 20,000 tonnes of SMP in 2013-14 when prices in the international circuit were high said international prices are likely to firm up further in about a month or so.

R S Sodhi, managing director, GCMMF, which markets dairy products under the Amul brand, said: "Exports are not yet viable, as current international SMP prices do not support exports. SMP prices have risen six-seven per cent in the past one month or so. India will be competitive in exporting SMP with a further increase of four-five per cent in the international prices. This is expected to happen in around a month or so, and after that, exports would be viable."

The reason Sodhi is upbeat about SMP prices moving up in the international markets is that globally, SMP and Whole Milk Powder (WMP) prices remain in tandem traditionally. "But, now WMP prices are around $600 a kg or about 30 per cent more than SMP prices. Naturally, SMP prices would increase," he said.

Another leading dairy products exporter Parag Milk Foods, too, had cut down on its SMP production, as the exports were not viable and focussed on other dairy products such as cheese. Devendra Shah, chairman and managing director of Parag feels SMP exports is not viable at the current prices. "Rs 155-160 a kg is the current domestic prices of SMP, and the global prices are 20-25 per cent lesser than domestic prices. If prices move up by another five-six per cent in the international market, then exports would be viable," he said.

The European Union (EU) still holds a lot of stock of SMP, which is why the prices are still at this level. However, in the next fortnight or so, prices will definitely increase, feels Sodhi.

"Already production is down in the EU because of low commodity prices. Side by side, New Zealand and Australia production has also decreased while the consumption as such has grown," he said.

International media reports suggest after rising nearly three-fold from 2009 to 2014, milk prices halved earlier this year, as farmers increased dairy supplies to try to cash in on an expected surge in demand from China and West Asia. The situation got more critical after Russia banned imports of food from the US, Australia, Canada and EU in August 2014, which led to piling up of a surplus.

Experts, however, say that surplus is waning. One of the world's largest dairy exporter New Zealand saw production falling by 1.6 per cent in the year to May 31. Production in Australia, too, has fallen about two per cent till June.

Sodhi said in FY16, SMP exports was about Rs 300 crore. It used to be around Rs 3,500 crore some time ago.

Amul has exported to Bangladesh, Pakistan, Afghanistan, West Asia, but in very low quantities. Amul exported about Rs 240 crore worth dairy products in FY16, and around half of this was commodity. Sodhi said it could have been three to four times more, if the market had been favourable.

Even if exports of SMP start, it would have no immediate impact on the prices of liquid milk in India, as liquid milk prices are already more than SMP prices in India, say players.

No longer easy to cook up the books

If auditors disagree with the results, the financial impact of their observations will have to be plainly spelt out

As a regulator of listed companies, the Securities and Exchange Board of India recently issued a plethora of amendments to different regulations. One of the significant amendments relates to filing of a statement on impact of audit qualifications in a tabular format with stock exchanges.

Unlike certain developed jurisdictions such as the the US, where companies are not allowed to file financial statements with audit qualifications, Indian stock exchanges (or SEBI or other regulators) continue to accept financial statements with a qualified auditors’ report.

In the US, if financial statements do not conform to the generally accepted accounting principles or GAAP, they are presumed to be inaccurate or misleading, irrespective of any explanatory disclosures.

Matter of difference

Audit qualification is generally a matter of disagreement between the auditor and the management. A modified/qualified audit report indicates that the financial statements/results are materially misstated. The impact of qualification/s may be quantifiable or may not be determinable.

Still, the qualifications may indicate that financial results presented by the management do not reflect the true and fair affairs of the financial transactions of the company and may accordingly have a significant impact on stakeholders’/investors’ decision making.

An audit provides users of financial statements reasonable assurance that the statements are in conformity with GAAP and relevant regulations. The contribution of the independent auditor is to give credibility to financial statements, which are relied upon by creditors, bankers, stakeholders, the government and other interested third parties.

Ideally, qualifications should be avoided as they bring a negative perception for companies. This can be possible only if the issues are resolved between the management and the auditor. Further, for qualifications that are not quantifiable (e.g. lack of sufficient appropriate audit evidence/scope limitation), the auditor is permitted to state the fact through a limitation of scope or disclaimer of opinion.

While qualification is a common practice in case of a disagreement, SEBI provided for a mechanism to address qualified audit reports. Till November 2015, listed entities were required to submit a form (Form B) for a qualified audit report together with annual report.

The qualified opinion was reviewed by a SEBI committee and the Institute of Chartered Accountants of India (ICAI), and based on their recommendations, SEBI could ask the companies to either get the opinion rectified or revise the financial information to address the qualifications.

The revised financial information was submitted as pro-forma results (revision to the results already filed/ submitted) and companies would further adjust their next year financial statements for a prior period error.

Further, it should be noted that Form B was required to be submitted along with the annual report which are filed must later than the financial results (filed within 60 days of the year-end). Also, no information about the qualifications was required to be filed for the quarterly results.

There’s more

While this process provided a meaningful mechanism to address the disagreement between the auditors and management, it failed to provide timely information to stakeholders.

Essentially, a financial result published by a company could be misstated by a significant amount and not known to the investors at the time investment decisions are being taken. Also, Form B provided for limited information — i.e. qualifications with management explanations and not matters such as quantification and the impact on the financial results.

In September 2015 and May 2016, SEBI amended listing regulations which now require a ‘statement of cumulative impact of audit qualifications’ to be filed instead of Form B. Further, the statement needs to be submitted along with the annual financial results.

It seems that statement may be required for quarterly results as well. The statement contains detailed information such as net worth, net profit, turnover, total expenditure, earnings per share, total assets and total liabilities in a tabular form.

The numbers need to be disclosed on the basis of audited financial results/statements and also after adjusting the related qualifications. Thus, instead of simple qualification information, SEBI requires filing of adjusted numbers.

Further, auditor needs to continue to report for each audit qualification separately, as far as the details, type and frequency of qualification is concerned.

The revision by SEBI is a welcome change and addresses most of the deficiencies noted in previous requirements. The new requirements could be challenging but nevertheless provide the much needed information at the right time.

Also, it seems the SEBI review mechanism of the qualified reports has been done away with. The review needs to be undertaken by stock exchanges now.

It is currently not clear on how the review will be performed but it is interesting to note that in June 2016, sections related to re-opening of accounts and revision to financial statements under the Companies Act 2013, have been made effective. These sections became effective along with the constitution of National Company Law Tribunal (NCLT) and National Company Law Appellate Tribunal (NCLAT).

These sections provide for the revision/ restatement for financial statements after approval from NCLT/ NCLAT. Additionally, unlike the existing Indian GAAP, the newly adopted IFRS converged standards (Ind AS) require restatement of previously issued financial statements, in case an error is noted for past periods. Reading all the requirements together, it seems India Inc. is entering the world of restatement (a common phenomenon in the western countries).

Necessary changes

Accordingly now, SEBI/ stock exchanges can apply to the Tribunal for restatement of financial statements of a company, if they believe that the accounts were prepared in a fraudulent manner, on the basis of qualifications filed along with financial results. This could be a significant change from the current practice of recording past period errors in the current year financial statements as a prior period item.

It should be noted that restatements have generally been viewed negatively as they reflect inaccurate financial reporting in the past. Most of the restatements have accompanied consequential adverse impact on the stock prices.

Overall, the amendments bring in some very necessary changes to improve financial reporting by corporate India and providing the relevant information on a timely basis.

As the changes have been introduced within a short-span of time, implementation of the same continues to be a challenge. It is imperative that corporates’ internal processes and systems are robust enough to address the changing requirements.

Piramal eyes more M&As in pharma, will launch new funds: Chairman Ajay Piramal

Piramal Enterprises has acquired US-basedAsh Stevens in an all cash-deal valued at $43 m

Piramal Enterprises has acquired the US-based Ash Stevens, a contract development and manufacturing company, in an all-cash deal valued at nearly $43 million. Ash Stevens will be the third facility for Piramal Enterprises in the North American market. Speaking to BTVI, Piramal Group Chairman Ajay Piramal says the company is looking at growing both organically and through acquisitions in the pharma space. The group is also looking at renewable and financial services as major growth opportunities, he said. Excerpts:

Can you take us through the benefits, the synergies and the rationale behind the Ash Stevens deal?

Ash Stevens is a manufacturer of high-potency API (active pharmaceutical ingredients). This is a niche, fast-growing market. In the last six years, the CAGR in this business has been about 9.9 per cent as far as the high-potency APIs are concerned. And we believe that this will form an important part of our client strategy

In North America, we have a facilityin Canada which makes high-value, low-volume products, intermediates and finished products. We also have an injectable facility in Lexington, Kentucky; and this will fit in well with that.

Besides, the customers that we have for Ash Stevens and our existing customers are very complementary to each other. Therefore, we will expand the customer base that we have; the sales force we have today will be able to sale these products as well. So we just increased our overall product offering to our customers.

You have been accumulating assets with niche abilities and capabilities. Where would your next focus area be in terms of geographic exposure or the addition of another such facility? Is it safe to assume that the interest will continue in the US?

In a pharmaceutical business, we have really three components. One is contract research and manufacturing (CRAM) or what we call pharma solutions. The other is critical-care product from which we make products such as inhalation and anaesthesia products, which go into critical-care centres such as surgery. And the third is OTC (over-the-counter).

Whereas CRAM and critical-care are both global businesses, OTC is an Indian business. So we look at growing both organically and through acquisitions in all these areas. So you could see acquisitions, both for products as well as for services.

It will not necessary happen only in the US, even though the US is the largest market. It could be also in Europe or in Japan as well. In the OTC space, which is only an Indian market that we carter to, we will do acquisitions only in India.

In the last eight months, we have acquired a series of three groups of brands for OTC in India.

You also recently invested ₹800 crore in ACME Solar. What is the rationale behind that and what are your future plans for it?

We are not really running these businesses as investment. It is not like we do in Ash Stevens. These are loans from which we earn interests over a fixed period of time and we will get it back. That is one thing.

On the other hand, we do feel that solar and renewable energy is a high-growth area and we want to back good promoters in this area so that they can create value and so can we.

The results have been good and you have been making acquisitions as well. What can we expect from the group in FY17?

As far as growth is concerned, I think we are fortunately well placed in those areas where we see good growth. So first, we see financial service, which is growing well with the growth in economy and PSU banks taking a little bit of back seat. It gives a good opportunity for NBFCs and private-sector companies to do well and gain market share. We will also launch a few funds in the near future.