Ceat

The profit on sale of investment in 1996-97 is from the sale of investments by Ceat in two investment companies, which were sold on March 31, 1997 for Rs 85.6 crore. Interestingly, as per the terms of agreement to sell, 50 per cent of the agreed price is receivable on or before August 31, 1997 and the balance by December 31, 1997. Thus, this book profit has not helped cash generation.

Surprisingly, Ceat which sold its investment in shares of Jubilee Investments on March 31, 1997 has purchased fully convertible debentures of Jubilee Investments in 1996-97 aggregating to Rs 32 crore. Although the consideration has not been received by the company, it has booked profit of Rs 29 crore on legal advice. The auditors of the company have qualified the transaction.

In another year-end sale agreement dated March 29, 1997, the company transferred the development rights on its property at Thane for a consideration of Rs 21.5 crore.

Ceats net profit after tax at Rs 6.60 crore was less than the recommended dividend distribution of Rs 7 crore. To make funds available for dividend distribution, on obtaining legal opinon, the company wrote back provision for debenture redemption reserves amounting to Rs 17.5 crore and used it for dividend distribution. The auditors of the company have qualified this accounting practice of the company.

Besides the above changes in accounting policy in 1996-97, Ceat also changed certain other accounting policies resulting into profits higher by Rs 10 crore. It changed its depreciation and lease accounting practice which has resulted in these charges being lower by Rs 2.5 crore.

There has been a significant diminution in investment by company in quoted and unquoted shares of companies and subsidiaries aggregating to Rs 40.4 crore for which company has not made any provision.