Oil producer Cairn India’s cup of woes brimmeth over. The taxman recently asked it to pay ₹20,495 crore — tax of ₹10,248 crore and interest of ₹10,247 crore. This is for alleged failure to withhold tax on gains made by erstwhile parent Cairn Energy Plc when it restructured its India operations in the run-up to Cairn India’s IPO in 2006.
While Cairn India has refuted the demand, fresh trouble has made an already bad situation worse. The rout of crude oil since last June has taken a toll on the company. For the nine months ended December 2014, consolidated profit was down nearly a third year-on-year. With oil prices languishing, the company has slashed capital expenditure — this will impact output growth. Jobs have also been cut.
Cairn India’s corporate governance was called into question in July last year, when it revealed a big-ticket loan given to a related party, on seemingly concessional terms. News that Cairn India may be merged with the Vedanta Group increased concerns about its cash utilisation. The company’s name being mentioned in the recent corporate espionage imbroglio also did not help.
No surprise the stock is down more than 40 per cent since its high in June last year, and has lost 13 per cent last month.