At a time when India Inc is trying hard to curtail cash outflows, legal and professional expenses of firms continue to grow at a faster pace than net revenues. In FY15, the overhead expenses, which generally comprise fees paid to lawyers, consulting accountants and business consultants, grew 11.7% to reach R18,720 crore for the BSE 500 universe.

In fact, the combined legal expenses of 415 companies from the BSE 500 universe for which comparable data are available has been increasing at a faster pace than both the topline and net earnings in the last five years. While the total legal expenses grew 18.5% CAGR between FY11 and FY15, aggregate revenue and net profit grew at a lower rate of 14.7% and 4.6%, respectively, during the same period.

Interestingly, sectors such as pharmaceuticals, refineries, banking & finance, infrastructure developers and information technology account for more than half of the total legal spends in FY15. Experts say the reasons for large legal and professional expenses would normally be company specific, though for certain industries reasons could be linked to the nature of their business.

According to Ashish Gupta, partner, Walker Chandiok & Co LLP, being a regulated sector pharma spends heavily on legal consultants for regulatory filings/defending patents, responding to litigations from innovators (for generic companies). “Companies from IT and finance space may hire professionals as retainers and their costs may be classified as legal and ‘professional’ expenses as well”, added Gupta.

The legal and professional fee of Cipla and Aurobindo Pharma grew over 40% since FY11 to R259.32 crore and R221.73 crore, respectively, whereas the spend by Lupin rose 30% to R311.5 crore. Though Software firms TCS and Infosys reduced their legal spending by 3% and 16.5% respectively in FY15, these firms still feature among the biggest spenders in terms of legal charges. The legal and professional fee of Larsen & Toubro and GMR Infra has trebled during the last five years, putting the infra sectors as the fastest growing among the six sectors with a CAGR of 27.8%. In fact L&T is the third largest spender in the universe with an outgo of R599.89 crore in FY15.

The largest private sector firm Reliance Industries that is under arbitration with the government over the pricing of gas it produces, continued to be the biggest spender in legal charges. The oil & gas major has spent R1,242 crore in FY15 against R1,184 crore last year. Lawyers point out that in last two years law firms have increased their fees. Also unlike in the past where legal help was sought only at the time of litigations, now the services of legal firms start from the initial stages, including drafting agreements.

“Also we can see a noteworthy increase in arbitration and penalties imposed by both domestic and foreign authorities” said a corporate lawyer.

Fortis Healthcare, which incurred R767 crore as legal charges, became the second biggest spender. Other companies with high spend on legal matters include Wipro (R368 crore), GMR Infra (R356 crore) Dr Reddy’s Labs (R347 crore) and Motherson Sumi (R331 crore).

In several cases, where companies undertook some merger or acquisition activity, such costs have also gone up. For example, legal expenses for Kotak Mahindra Bank, which acquired ING Vysya Bank at the end of the last year, rose by 28% to R395.41 crore.

Only those costs directly relating to investments that may be capitalised as cost of investments do not get accounted as legal and professional expense. “Industry practice has been to classify expenses relating to M&As as legal and professional expenses, if charged to profit and loss account,” said Gupta.

IDFC shares tanked over 50 per cent on Thursday ex-demerger of IDFC bank and IDFC. (Photo: PTI)

With IDFC Bank being carved out as the country’s newest bank, infrastructure financing firm IDFC Ltd on Thursday began trading as a standalone entity as part of the demerger scheme.

IDFC shares tanked over 50 per cent on Thursday ex-demerger of IDFC bank and IDFC. IDFC shareholders would get an equity share in IDFC Bank for every equity share in IDFC, according to the company filing in BSE. The IDFC management plans to list IDFC bank by November 6.

IDFC shares opened at Rs 69 apiece on BSE compared to its previous close of Rs 141.30.

IDFC’s stock will reflect 53 per cent stake in IDFC Bank as compared to 100 per cent earlier. Fair value for IDFC seen between Rs 100-120 per share and that for the banking arm seen between Rs 70-80 per unit.

Rajiv Lall takes over the position of MD and CEO of IDFC Bank with effect from October 1, 2015. As a result, the Board of Directors of IDFC Limited has accepted the resignation of Rajiv Lall, as executive chairman of the company w.e.f. September 30, 2015.

IDFC Ltd has fixed October 5 as record date for share transfer as part of demerger scheme, which became effective from Thursday.

IDFC Bank, which started functioning as a full fledged bank from Thursday with over 20 branches, will get get listed separately later.

(With inputs from Reuters)

HCL Technologies shares slid as much as 15 per cent in the early trade on Thursday after the company gave a weak pre-quarter guidance for the first quarter ended September 2016 (Photo: Reuters)

HCL Technologies shares slid as much as 15 per cent in the early trade on Thursday after the company gave a weak pre-quarter guidance for the first quarter ended September 2016 (1QFY2016), which indicated that revenues to be reported in US dollar will have an adverse impact of 80 basis points on account of sharp depreciation of multiple currencies against US dollar. The IT major follows July-June as the financial year.

At 9.31 am, shares of HCL Technologies were trading 9.44 per cent down at Rs 889.45. It opened at Rs 915 and had touched a high and low of Rs 915 and 837.20, in trade so far. Sensex was up 0.87 per cent at 26,381.78.

The company expects tepid revenue growth in the first quarter on account of – adverse currency impact, a client specific issue and skewness in revenue growth due to transition timelines for complex engagements in infrastructure services.

In one of the multi-million custom application development project being executed for one of the customers, certain differences have risen with the customer. The company reserved upto $20mn as a matter of prudence.

Sarabjit Kour Nangra, VP research, IT, Angel Broking, said, “These factors will have a significant impact on the overall performance of the company in 1QFY2016. Though currency is a quarterly impact, the client specific issues can have an impact for the FY2016 numbers. Since the exact impact is not ascertained as of now we are not changing our numbers and will wait for more clarity on the issue. However, we believe in the worst case scenario, the impact would be around 5-6 per cent on EPS in the ongoing financial year. We currently maintain our ‘BUY’ rating with a price target of Rs 1,132.”

Domestic equity markets opened in green tracking firm global cues. Sensex opened 189.36 points up at 26,344.19. (Express Photo)

10.04 am: Shares of Eveready Industries gained over 3 per cent in the morning trade on reports that the company has hike battery prices by Re 0.50 per piece (5 per cent).

10.01 am: Brokers said sentiments turned bullish after RBI Governor Raghuram Rajan sprang a surprise by announcing a biggest-than-expected interst rate cut of 0.50 per cdent to 6.75, lowest in four-and-half-years to boost country’s economic growth. Sensex was up 223.80 points at 26378. Nifty was up 51.80 points at 8,000.

9.43 am: Kalpataru Power Transmission (KPTL) shares gained over 3 per cent in the morning trade on Thursday after the company informed stock exchanges that it has bagged two contracts worth Rs 781 crore. The company has secured one contract for transmission line projects in international geographies namely Malawi and Kuwait of approximately Rs 594 crore. The company has bagged the second contract for a pipeline project worth around Rs 187 crore from ONGC. In the year till date, the company has secured orders of around Rs 3,460 crore, which is almost three times of order inflow of last year in the same period.

Sensex was up 0.82 per cent at 26,367.

9.19 am: Sensex was up 271.81 points at 26,426.64. Nifty was up 45 points at 7,993.05. In the 50-share index, Vedanta, GAIL, Infosys, Adani Ports and Sun Pharma were up between 1.50 per cent and 2 per cent. On the other hand, HCL Tech, Tech Mahindra, Idea, Bhel and Tata Motors fell between 0.10 per cent and 14.50 per cent.

Source: NSE

Domestic equity markets opened in green tracking firm global cues. Sensex opened 189.36 points up at 26,344.19. Nifty opened 43.15 points up at 7,992.05.

Shares of HCL Technologies will remain in focus on Thursday. For 1QFY2016, the company has given a pre-quarter guidance indicating that revenues to be reported in US dollar to have an adverse impact of 80 basis points on account of sharp depreciation of multiple currencies against US dollar. HCL Tech shares were down around 10 per cent in the opening trade.

Asian stocks rose on Thursday, drawing strength from overnight gains in global equities markets following their weakest quarter in four years, and a China factory activity survey that came in slightly better than initially expected.

The final Caixin/Markit China Manufacturing Purchasing Managers’ Index (PMI) for September was slightly down from August but was a touch higher than a preliminary reading, data released on Thursday showed.

Back home, Sensex and Nifty gained over 1 per cent on Wednesday following upbeat global markets. The sentiments also got a boost after the Reserve Bank of India went for a bigger-than-expected rate cut on Tuesday. Sensex closed 376.17 points up at 26,154.83. Nifty advanced 105.60 points at 7,948.90.

(With inputs from agencies)