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Trading on behalf of clients led to surge in revenues of NSEL

The NSEL, facing a R5,600-crore payment crisis, saw its revenues surge in 2012-13, largely supported by its own trading activity, which accounted for 60% of its revenue in FY13.

The NSEL, facing a R5,600-crore payment crisis, saw its revenues surge in 2012-13, largely supported by its own trading activity, which accounted for 60% of its revenue in FY13.

During FY13, the exchange sold R292 crore of goods, including R286.5 crore of agri commodities. These goods were procured at a cost of R332 crore. As a result, NSEL clocked in total revenue of R472 crore and a net profit of R125 crore during the fiscal ? a six and five fold increase, respectively, over the previous year. The exchange carried R49 crore of inventories in the balance sheet in the last fiscal.

In FY11, too, trading activity had accounted for nearly 80% of the R153 crore topline declared by the exchange, according to annual reports. However, in FY12, the exchange showed no trading activity.

While an exchange is typically not an entity which engages in trading by itself, NSEL explains this as value-added services offered by them. ?The exchange had carried out procurement of goods on behalf of government agencies as well as private sector, which is one of the services provided by the exchange, ? said NSEL in response to a query from FE. The audit report, meanwhile, does not give out the details of the traded agri and non-agri commodities as the revised schedule VI of the company’s act does not require such reporting, says the NSEL. Another component of exchange income that saw a huge jump in FY13 was warehouse receipt charges, which surged to R113.8 crore in FY13 from a mere R8.5 crore in FY12, even as the delivery charges and procurement commission fell during the period.

?During the year, turnover of non e-series contracts had increased substantially. The turnover of agricultural goods had levy of warehouse receipt charges,? said the exchange. A regrouping of exchange delivery charges contributed to the jump, along with an overall increase in activity on the exchange. ?Overall increase in turnover on the platform of the exchange had contributed to warehousing receipt charges,? said the exchange in an emailed response.

Data, however, do not entirely support that argument. As per the NSEL website, the total volume of the exchange during FY13 fell 40% to 350.4 crore lots , while the turnover slipped by a more moderate 3% y-o-y to R2.95 lakh crore.

FY13 also saw a sharp increase in the exchange’s other income, which includes interest income on bank deposits and on late payments by various debtors. These two components contributed R42 crore to the exchange?s ‘other income’ compared to just R1 crore in the previous year. Overall, other income stood at R66.4 crore in FY13. Another concern that emerges is the maintaince of the settlement guarantee fund, which lagged the growth in profitability. As a result, the ratio of settlement fund to net profit has fallen from 27 times to six times in the last three financial years. At the end of FY13, NSEL maintained R707 crore of settlement fund from R361 crore in the previous year.

The exchange, however, terms this rise as ?commensurate with increase in the activities on the exchange platform? The annual reports of the exchange make no mention of the value of the commodity inventory ? which is now at the centre of the storm. The exchange claims the inventory is valued at R6,200 crore as of August 6.

While NSEL?s auditors, Mukesh P Shah & Co, did not undertake a physical assessment of the inventory, they did not find any discrepancies as on March 31, 2013. ?We followed every transaction beginning with a trade and concluding into a pay-out based on the verifiable documents provided to us and did not find any variance in the claimed quantity and value of the goods,? said Mukesh Shah, partner at the firm.

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First published on: 27-08-2013 at 03:35 IST
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