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Business News/ Opinion / Online-views/  MCX-SX net worth nears floor level, auditor pens qualification
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MCX-SX net worth nears floor level, auditor pens qualification

The exchange's net worth was Rs120 crore as on 31 March, down from Rs275 crore at the end of the previous fiscal year

The exchange reported a loss of `154.53 crore for 2013-14 because of a significant increase in operating expense, in sharp contrast to a profit of `21.42 crore in the previous fiscal year. Photo: Ramesh Pathania/MintPremium
The exchange reported a loss of `154.53 crore for 2013-14 because of a significant increase in operating expense, in sharp contrast to a profit of `21.42 crore in the previous fiscal year. Photo: Ramesh Pathania/Mint

Mumbai: The net worth of MCX Stock Exchange Ltd (MCX-SX) has eroded significantly in 2013-14, according to a financial statement released by the exchange during the weekend.

The exchange’s net worth was 120 crore as on 31 March, down from 275 crore at the end of the previous fiscal year and close to the minimum regulatory requirement of 100 crore.

The company’s auditor qualified the statement saying MCX-SX had not provided for infrastructure and software support expenses worth 10.71 crore payable to parent firm Financial Technologies (India) Limited (FTIL) for various long-term contracts.

“Accordingly, to that extent, fundamental accounting assumption of accrual has not been followed," the auditor said, adding if the provisions had been made, the net loss would have been 165.24 crore and reserves and surplus 55.46 crore, bringing net worth further down to 110 crore.

The exchange reported a loss of 154.53 crore for 2013-14 because of a significant increase in operating expense, in sharp contrast to a profit of 21.42 crore in the previous fiscal year. The quarter ended 31 March saw a loss of 14 crore.

Chartered accountants say auditors file a qualification when they feel something important or material has not been adjusted in the financial statements and that such an adjustment needs to be made for the financial statements to reflect a true and fair view.

“It seems the auditor in the given case felt that the provisions needed to be made against the receivables. The company may have taken a view that the amounts are recoverable, but could not convince the auditors about the possibility of realization of the same, despite the legal opinion. The auditor, based on the facts and circumstances, have the right to take an unbiased view on such judgemental matters," says Nikhil Singhi, partner, Singhi & Co, a chartered accountant member firm of Baker Tilly International.

MCX-SX, however, said it did not make the provisions after the management decided to review all such contracts to ensure charges were comparable to those paid by other exchanges in similar lines of business. “This is based on a legal opinion received by MCX-SX, which raises concern on the arm’s length nature of these contracts," the financial statement said.

The exchange had raised 60 crore through a rights issue that closed on 30 April. According to the balance sheet, 27.16 crore was received as part of the rights issue till 31 March, 2014. This, however, has not yet been factored in the net-worth as the allotment is pending.

A total of 27.16 crore has been shown as “share application money pending allotment" in the statement of assets and liabilities. “The said amount is the share application money received as on 31 March 2014, whereas the rights issue closed on 30 April 2014. Hence, the amount… is the money received during the progress of the rights issue," an MCX-SX spokesperson said in response to a query.

“The networth of MCX-SX would certainly be strengthened by the proceeds of rights issue. In addition to this, the recent measures announced in currency derivatives market will boost the volumes in couple of months thereby strengthening the revenue streams of our exchange. In addition to this, the cost rationalization efforts undertaken over last few months will also arrest the falling networth," the spokesperson said.

However, the exchange might face issues with the allotment, since holdings of most shareholders are already close to the maximum allowed by the Securities and Exchange Board of India (Sebi). In the absence of widespread participation, stakes of a few shareholders will inevitably cross the thresholds.

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Published: 24 Jun 2014, 12:44 AM IST
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