After finding the involvement of the company promoters in price-rigging, SEBI banned them from trading. However, questions are still being asked about Murli Industries’ accounting practices, where without taking on any fresh debt, its interest costs have doubled in the third quarter

Murli Industries Ltd (MIL) was in the news a few months back, for the promoters' involvement in price-rigging as unearthed in an investigation conducted by the Securities and Exchange Board of India (SEBI). Now analysts are questioning the company's accounting practices. The recently announced results for the December quarter also raises doubts about the quality of its accounting.

MIL has diversified businesses in power, cement, paper and paperboard, and it also operates a solvent extraction refinery. The company reported a loss of around Rs97.20 crore for the December 2010 quarter.

The interest cost for the third quarter stood at Rs52.48 crore-almost double as compared to a quarter earlier, where it was at Rs25.68 crore. According to industry sources, the company has not taken on any new debt in this quarter.

Still, there is a two-fold rise in interest cost. Not just the interest calculation, the company's depreciation also shows a strange deviation. The depreciation for the third quarter came down heavily to Rs6.21 crore, from Rs21.09 crore a quarter ago.

Since then, no businesses have been hived off-this does looks strange.

The revenue from the cement segment stood at around Rs15.13 crore. The company claims that its cement capacity is 3 million tonnes (MT). But with Rs15 crore in revenues, a ballpark estimate would indicate that its production should be only around 40,000 tonnes.

MIL made an ambitious foray into cement, but was weighed down by the debt that it ostensibly used to build up its production capacity. Now that it is selling off its cement business, the company will be able to concentrate more on its core businesses-solvent extraction, paper and power.

In November last year, there were various media reports which indicated that MIL was close to offloading its cement division to Mexico's Cemex, which is the world's third-largest cement maker.

While the paper industry as a whole is making decent profits, the revenues from MIL's paper segment have fallen drastically.

For the third quarter of the current fiscal, MIL reported losses (before tax and interest) of Rs18.99 crore. In the previous quarter, the company's paper segment booked a profit (before tax and interest) of Rs14.85 crore. The percentage of profit before interest and tax, to the net sales of its paper segment, has fallen by 48%.

On the other hand, other paper companies have grown with decent operating margins. For the December quarter, the operating margin of Tamil Nadu Newsprint & Papers Ltd stood at 26%, for Seshasayee Paper & Boards Ltd it was 16%, while it was at 24% for West Coast Paper Mills Ltd.

MIL's other financial provisions are also strange. For instance, the other expenditures of the company for the third quarter stood at Rs13.15 crore. It was Rs5.59 crore a quarter earlier, an increase of 135%. Such unexplainable surge in the expenses surely attracts suspicion.

A few months back, SEBI had imposed a ban on the company and its promoter from trading in its own shares and the shares of group companies. MIL was one of the four companies where promoters had colluded with speculators to ramp up prices. The others were Ackruti City, Welspun Gujarat Stahl Rohren and Brushman India.

According to the SEBI order, preliminary investigations showed a "well laid down strategy planned by promoters of the company (Murli Industries) along with Sanjay Dangi to manipulate the share price of the company before the issuance of the foreign currency convertible bonds (FCCBs)."

SEBI has also barred Mr Dangi and his group firms from dealing in any kind of security. This ban has been imposed on charges of share price manipulation.

Till the time of writing this story, MIL has still not responded to an email sent by Moneylife on Thursday, 24th February.