TRF’s stock price has crashed by around 24% from Rs1,065.65 per share on 28 May 2010 to Rs807.15 per share today. Accounting errors disclosed in the company’s year-end result announcements on 31 May 2010 have triggered this fall

TRF Ltd’s stock price has fallen by around 19% following the company year-end results announcements. The stock price has fallen from a high of Rs1,065.65 on 28 May 2010 to Rs862 on 31 May 2010. Accounting issues raised due to certain reversals in revenue entries could have triggered the fall. The stock today closed at a further low of Rs807.15.

In the footnotes for its FY10 results, the company stated that certain contract costs, which were recorded incorrectly in the earlier years, were noted during the years ended 31 March 2010 and 31 March 2009.

Further, in a conference call held to discuss the company results, Ashim Roy, general manager, finance and accounts, TRF Ltd said, “You know sometime in financial year 2006-07 we have got a contract what we call ‘Navayuga’—the Krishnapatnam port contract. This is a contract with a division called port & yard equipment division, which operates from Kolkata. Sometime in the previous financial year (08-09) it was brought to light that there was some booking of turnover in 2007-08, which was not in line with the counting practice and we decided as a company that we must reverse those entries.”

For the total value of such entries reversed in 2008-09, the topline was affected by around Rs48 crore and the bottom-line was affected by around Rs13.37 crore.

Further, in the fourth quarter of 2009-10, while the final accounts were being prepared, the external auditors found another such entry.

“We believe that everything has been cleaned up and there is nothing like any more such entries lying anywhere. The 2008-09 year went by, 2009-10 whole year went by—quarter-to-quarter we had all technically audited accounts and so on. But by the time the year was ending and the final account was being prepared, one more such entry was noticed by our external auditors,” said Mr Roy.

The impact of this entry, reversed for 2009-10, has affected the company’s bottom-line by around Rs2.39 crore and the topline by around Rs11.5 crore. The company now plans to get an investigation done by a third-party agency. The deadline set for this third party to complete this investigation is one month.

Apart from announcing it briefly in the footnotes of the result announcements, the company has not disclosed to the Bombay Stock Exchange (BSE) these accounting irregularities. On being questioned whether any special communication has been made to the shareholders, Mr Roy told Moneylife, “We have already spoken about it in the conference call. We have disclosed it to the BSE in the results sheet. It has affected the company only by a few crores.” No written communication is being planned for the investors.

Commenting on the fall of stock prices after the result announcements, Mr Roy said, “The fall in stock prices should be short term. We have also conducted meetings with investors.”

TRF Ltd today closed at Rs 807.15 on the BSE, down by 3.73% from its previous close of Rs838.40 on Monday.

The mutual funds with major investments in TRF are Sundaram BNP Paribas Energy Opportunities (Rs24.21 crore), Sundaram BNP Paribas CAPEX Opp Reg-G (Rs9.10 crore), Sundaram BNP Paribas CAPEX Opp Reg-D (Rs10.36 crore), Franklin India Smaller Companies (Rs 14.44 crore), ICICI Prudential Emerging STAR Inst I  (Rs19.7 crore), ICICI Prudential Emerging STAR (Rs19.17 crore), UTI Energy (Rs9.06 crore).

An email request sent to Sundaram BNP Paribas remained unanswered till the time of writing the story. Templeton Franklin refused to comment on individual companies in the fund’s portfolio. Officials from UTI Energy were unavailable for immediate comments.