Stock Review: TRF

Expense Underestimation By A Unit Costs Co . 46 Cr

 

SHARES of TRF — a Tata-promoted manufacturer of material handling equipment — crashed 20% on Wednesday, after the management told analysts at a conference call that it had to write off . 46 crore because of an accounting fraud in one of its divisions. An e-mail sent to the company spokesperson did not elicit any response.

   Trading in the shares was frozen at 689.45, after there were only sellers. Around 1.25 lakh shares —nearly 9 times the two week average daily volumes — were traded on the BSE on Wednesday.

   "The company said 'a misrepresentation and underestimation of costs by one particular department of TRF has cost it around . 46 crore," said an analyst who was part of the conference call addressed by senior company officials. Ajay Parmar, head, institutional research, Emkay Global Financial Research, said the stock was likely to be under pressure for some more time.

   "The quarterly results surprised negatively on account of cost over runs. Also the operating margin guidance has been lowered to 7% from 10% earlier," he said, adding that net profit guidance could be lowered by 25% shortly. The company reported a consolidated net loss of . 22.6 crore for the September quarter compared with 12 crore for the same period last year.

   For FY 2009-10, the company had reported a net profit of . 48.76 crore. "Any long term call can be taken only after the stock price stabilises," said Mr Parmar.
   According to another analyst who had participated in the conference call, the company said that an extensive investigation had been done and corrective measures taken to prevent recurrence of such incidents.

   "The officials responsible for this have been suspended and figures have been restated after taking corrective measures," said the analyst. TRF, formerly known as Tata-Robins-Fraser provides material handling equipment and processing systems. It also undertakes projects for power and steel plants, ports, fertilisers and mining sectors.

   It receives a small portion of its business from group/associate companies like Tata Steel, Tata Projects, Tata Motors and Tata Power among others. "The stock is expected to remain under pressure for some more time till the clarity emerges fully on the nature of fraud," said Sageraj Bariya, research analyst, Angel Broking.