Maruti’s struggle to stay on course
Telecom services split into two wings
Tata firm plans to sue civic body
A-I waits for the flight to freedom
Haldia Petro mops up Rs 269 cr via debentures
Sick Bihar unit faces closure

 
 
MARUTI’S STRUGGLE TO STAY ON COURSE 
 
 
BY M. RAJENDRAN
 
New Delhi, June 25 
Here is company that makes cars seen as icons of an assertive middle class. Much of it is owned by a government that sees little or no future in selling cheap vehicles to a society which now has zipper models made by global auto majors vying for its attention. Will shares in this company be coveted by private investors once the Centre decides to sell them?

The answer is not simple, especially for a company which has annual revenues of more than Rs 8,000 crore, and sells more than half of all the cars that roll out of the assembly lines on to the Indian roads. Quite predictably, the government’s announcement that it could sell 50 per cent of its stake has led to a feeling of excitement and anticipation.

But, the key question is whether the company will remain the way it is now without a generous government that has nurtured — some would even say pampered — it to a position of dominance.

A fleeting look at its past will help to understand the future. Here is a company that was set up at a time when India’s middle class was making more money than it ever had in the past.

As it looked for global standards, the ubiquitous Maruti car turned into a metaphor for new-found affluence and young aspirations. Maruti’s dreams to become a big car maker meshed with the ambitions of the middle class. Both moved ahead.

It wasn’t always like this. The Indian car market had stagnated at 30,000 or 40,000 cars annually till 1983. By 1994, as the ranks of noveau riche swelled, Maruti hit what was then a magical one million mark. Three years later, it raced past two million. The near meteoric rise prompts the questions:

Was Maruti’s success merely due to right timing, correct pricing and wide distribution?

Sanjay Gandhi’s dream car project was a sheltered baby for a long time. Automobile licensing, which continued till 1992, ensured Maruti straddled the market like a Colossus. A salad of sops offered by an ever-willing bureaucracy made things even easier.

For instance, taxes were cut selectively on eight-seater cars — a discreet ploy to make sure that only Maruti’s Omni gained from the price reductions that would follow.

However, even as the Omni became a best-seller, the success concealed the fact that the company’s dominance and market share was being challenged strongly in other segments.

Winds of liberalisation could not be stopped. Maruti remained a leader under threat. From a 73.7 per cent share in 1994-95, it moved up to 79 per cent in 1996-97 and peaked in 1997-98 at 82.8 per cent.

From here, it started its journey downhill. The figure fell to 78.9 per cent in 1998-99, to 65 per cent in 1999-2000 and to 55 per cent in May this year. Clearly, the metaphor, and the Indian middle class, had changed a lot.

Global auto majors such as Hyundai, Ford, General Motors jumped into the fray. Then, there was competition from Telco’s Indica.

As these players launched value-added variants, and the company delayed making its cars Euro-compliant, customers felt Maruti was not giving them the best technology. Feeling betrayed, they started turning away.

On Saturday, as it began to feel the heat of competition, the company announced price cuts up to Rs 25,000. The Maruti 800, its flagship model, will now cost Rs 1,98,979, down by Rs 22,901.

Many feel the stake sell-off by the government will allow the private partner to bring in new technology. But Maruti’s systems match only Suzuki, the co-owner. Picking up the government’s holding will make more sense for the Japanese major or one of its nominees.

Suzuki has raised gradually raised its holding from 26 per cent to 40 per cent in 1987, and to 50 per cent in 1992. However, it is not known globally as a technology leader.

At the same time, Maruti has a strong supplier base, a wide sales and after-sales network, and the ability to offer quality models at a reasonable price — all of which are required to make a mark in a market with cut-throat competition. The success story, or the lack of it, will depend largely on the marketing strategy adopted by the management.

Maruti is aware of the threats and challenges. “Times are changing, and passenger car industry in India is unlikely to be the same.

The customer is our area of focus and we have always believed in keeping him happy. His expectations are rising. The situation is likely to further change with the intensified competition in the small car segment,” Jagdish Khattar, company chairman and managing director, says.

“All of us at Maruti realise the need to provide maximum value for money to our customers through our products and services. We are trying hard to continuously improve what we offer to customers in order to keep this equation in his favour.

This is the only way we can sustain our competitive advantage and retain market leadership. There is no doubt that competition will provide us with an opportunity to further consolidate our strengths and help us serve our customers better.”    


 
 
TELECOM SERVICES SPLIT INTO TWO WINGS 
 
 
FROM OUR CORRESPONDENT
 
New Delhi, June 25 
In a major turnaround today the Union government succumbed to the pressures of the striking Telecom Services officials. It has bifurcated the department of telecom services (DTS) into Department of Telecom Operations (DTO) and Department of Telecom Service (DTS) to accommodate an Indian Telecom Services officer as secretary.

Following this agreement, the work-to-rule agitation by the Indian Telecom Services Association (ITSA) was called off.

At a hurriedly called press conference communications minister Ram Vilas Paswan said “a new department named ‘Department of Telecom Operations’ would be created bifurcating the DTS. The new department would be headed by an officer from ITS while the DTS would be headed by Indian Administrative Service officer.”

ITSA had demanded that the DTS should be headed by an ITS officer with full powers.

The work to rule agitation threw telecom services out of gear. The STD and ISD calls, were most affected during the last few days.

The employees had threatened to go on a nationwide strike on June 28, if their demands were not fulfiled.

Paswan said work allocation between the existing DTS and the new department DTO would be finalised after consulting Prime Minister Atal Behari Vajpayee and the Cabinet Secretariat.

He was unable to explain the rationale for creating a new ministry when the government has been on a mission to downsize the administration. He evaded the question and retorted, “When the issues has been solved and your telephones are working why should you care about downsizing?”

There can be new ministers for these departments, added the minister. The meeting between ITSA and Paswan was held today after their meeting with Brajesh Mishra, principal secretary of Prime Minister failed to resolve the issue last night.

Though the agitation over the issue of appointment of an ITS officer to the post of secretary has been resolved, the corporatisation of DTS and their demands regarding it are yet to be resolved.    


 
 
TATA FIRM PLANS TO SUE CIVIC BODY 
 
 
BY AMIT CHAKRABORTY
 
Calcutta, June 25 
The Tata-owned Tinplate Company and its downstream manufacturers of oil cans are planning to sue Calcutta Corporation for contempt of court for failure to enforce a court order.

The council members of the newly-elected corporation may face contempt issue that concerns health of the people as also the interest of the small-scale tin makers in and around the city.

A division bench of Calcutta high court had directed the corporation to enforce use of prime tinplate for packing edible oil.

Edible oil packed in second-hand tin causes health hazard for millions of people.

The issue at stake is both, the health hazard, and, closure of a large number of processors who make the 15 kg tins from oil can grade tinplates.

Tinplate Company is the sole supplier of oil can grade tins and closure of the downstream units directly hurts its business interest.The bench comprising justice S. B. Sinha and justice M. H. S. Ansari, did not permit use of recycled and second-hand tin containers for packing vanaspati and other edible oils.

The Prevention of Food Adulteration rules very specifically prohibits use of second-hand tins and non-prime time tinplates for packing edible oil.

However, it is a common site in the city’s Posta Bazaar area where wholesale edible oil traders pack oil in used tins. In the grocery shops too edible oil and vanaspati are sold in retail from usually second-hand tins.    


 
 
A-I WAITS FOR THE FLIGHT TO FREEDOM 
 
 
SATISH JOHN
 
New Delhi, June 25 
As the day of deliverance for Air-India (A-I) draws closer, the country’s national carrier finds itself in turbulence caused not by things it has done or undone but by vested interests who are trying to downgrade it to feather their own nests. The convulsions come at a time when the government has put the airline on the fast track for disinvestment.

The appellations bandied around to describe its plight range from a perennially loss-making PSU to a drain on the national exchequer and even an airline in a financial tailspin. However, aviation industry sources say nothing could be further from the truth.

Air-India, they assert, has managed not only to survive but do it well despite several handicaps which are associated with a government-owned organisation. It is now on the turnaround trail, with an operating profit of Rs 2 crore, an indication that the bad times could be a thing of the past.

The recovery has come in a year when fuel prices soared 75 per cent. It cost the company an additional Rs 180 crore, in addition to the Rs 180 crore it paid to Caribjet in a controversial lease deal. Had it not been for these, the airline would have made a net profit of at least Rs 200 crore, say sources at Air-India.

What officials find galling is that the pejorative tags are being given even though the airline has never ever received any subsidy or budgetary support from the central government.

More significant, it is the only public sector company which is competing globally on a level playing field against global giants like British Airways, Air-France, KLM and Lufthansa.

It also has the dubious record of being one of the most undercapitalised airlines in the world. The government owns 100 per cent of the airline and its paid-up capital is a measly Rs 153.84 crore.

Air-India has been steadily ploughing back into business its earnings. Till March 31 1999, funds re-invested from internal resources stand at a whopping Rs 3,796.02 crore. The same year, its gross fixed assets base was worth Rs 6423.41 crore.

Locally, Air-India faces constraints like paying more for aviation turbine fuel — almost 40 per cent higher than foreign airlines, which are insulated from local sales tax by virtue of IATA regulations. As a result, the additional cost on account of paying sales tax for Air-India is Rs 70 crore. “It puts us at a disadvantage at home,” airline officials say.

Despite making losses in the past few years, Air-India has never defaulted on loans. On the contrary, its loan repayment record has been exemplary. During 1999-2000, it repaid Rs 212.31 crore to bring its exposure on loans to Rs 3436.89 crore compared with Rs 3649.2 crore in the previous year. “Every year, we repay $ 120 million,” an A-I official said.

While the government has invested Rs 153 crore in the national carrier in the form of equity and loan — which was later converted into equity — the airlines has paid over Rs 220 crore in the form of interest and dividend. By virtue of being the country’s national carrier, it has made investments in equity and loans to the tune of over Rs 170 crore.

For instance, it was constrained to invest Rs 32.98 crore in the now-defunct Vayudoot, a feeder airline. Air-India has also invested Rs 60 crore in Indian Airlines. It has pumped in Rs 18.58 crore in the Indira Gandhi Udaan Academy, and Rs 40.60 crore in its subsidiary, the Hotel Corporation of India.

None of the investments it was forced to make by virtue of being the national carrier seem to have paid off, barring the one in Air Mauritius. A-I invested Rs 2.62 crore in the equity of the Mauritius-based carrier and was rewarded with a return of Rs 5.27 crore.

Other investments, like those in Vayudoot, HCI, IGRUA and even Indian Airlines, may have to be written off, say observers in the aviation industry.

Even the western nations, which believe in the survival of the fittest maxim, have supported their national carriers in distress. The French government, for instance, injected $ 4 billion in Air France, while the Italian government gave Alitalia $ 2 billion from taxpayers’ money. So have Belgium, Greece, Spain and a few other countries.

It is creditable that Air-India has managed to compete globally despite heavy odds. Unlike other airlines, A-I is faces rising fuel bills because the government does not allow public sector companies to hedge their costs — something that would have saved the airline Rs 180 crore.

Senior IATA officials were shocked when Michael Mascarenhas, managing director of A-I, revealed his predicament at a recent conference in Australia.

“Give us a free hand to expand and buy our aircraft, and allow us to finance purchases from global consortiums. We will not ask for government support to expand our fleet which has not grown for the past so many years,” a senior A-I official said.

In fact, the aircraft carrier was saddled with ageing aircraft in the form of Boeing 747-200s. It is slowly getting rid of the aircraft and currently only four 747 aircraft are in their rolls.

Talking about 747-200s, the officials talk about how critics compare the fleet utilisation solely by benchmarking the performance of Air-India’s 747-200s. “You don’t need an aviation expert to say that this is unfair”.

Its fleet utilisation is comparable to the best in the world. In fact, it is better than the rest in the case of A 310.

The other major grouse against the airline is the low productivity of the employees. This again isa wrong comparison. This is because in foreign airlines, the support staff is employed on contract while Air-India by virtue of being a model PSU employer went on an overdrive in the past.

So, who is interested in disparaging Air-India. Could it be its rivals or parties interested in acquiring its stake?

The fact that Air-India is on the turnaround path cannot be missed and the fact that the national carrier has its hub in one of the most important geographical outpost that connects the east to the west cannot be missed.    


 
 
HALDIA PETRO MOPS UP RS 269 CR VIA DEBENTURES 
 
 
BY SUTANUKA GHOSAL
 
Calcutta, June 25 
The Rs 5,170 crore Haldia Petrochemicals Ltd (HPL) has successfully mopped up Rs 269 crore through optionally convertible debentures (OCDs).

Leading financial institutions such as the Unit Trust of India, Life Insurance Corporation of India and the General Insurance Corporation of India have subscribed to the issue. While UTI has put in Rs 50 crore, LIC and GIC too have taken a substantial portion.

Bank of Baroda has made a subscription to the tune of Rs 15 crore while the United Bank of India and Dena Bank have each subscribed to OCDs worth Rs 10 crore. A few gramin banks have also participated in the issue.

HPL had initially planned to mop up Rs 100 crore through OCDs.

It received an encouraging response when the OCDs were launched in August last year, following which it set a target of mopping up Rs 250 crore through the OCDs in tranches. “The subscription to the OCDs has surpassed our expectations of Rs 250 crore,” a senior HPL official said.

The OCDs have a coupon rate of 16 per cent with a maturity period of five years.    


 
 
SICK BIHAR UNIT FACES CLOSURE 
 
 
FROM OUR CORRESPONDENT
 
Ranchi, June 25 
The ailing Heavy Engineering Corporation Limited unit here may be forced to close down in August this year unless it gets more work orders from major public sector units and private enterprises, according to the Confederation of Heavy Engineering Corporation Trade Unions.

Union spokesperson N.P. Singh said here that the corporation had received work orders worth Rs 400 crore from SAIL, the defence sector, the railways and other departments. The corporation could subsist on these orders would for two months, he said.

Singh said a meeting of 26 trade unions here recently urged the corporation management to constitute a task force to evolve methods to save the ailing corporation. He said expenditure sho-uld be curbed and new ways found to increase internal revenue.

Representatives of trade unions met Union minister for heavy industries Manohar Joshi in New Delhi and reminded him of the promises he made during his visit to Ranchi this year to procure work orders for the corporation, Singh said. Talks with the minister were fruitful as the defence sector has promised to come forward with more work orders in the coming months, he said.

The representatives have also asked the management to dispose off the fully air-conditioned Russian Hotel, which is run by the HEC, on rent or otherwise and evict unauthorised occupants of around 550 corporation quarters.

Singh said these quarters are occupied by the state police personnel and the corporation is losing revenue worth more than Rs 5 lakh per month due to the “illegal” occupation.

The HEC’s policy of giving crores of rupees as commission to private parties for procuring work orders has drawn flak from the comptroller and auditor general, a source said. He said CAG auditors had found that the HEC paid commission to a private agent for procuring a Rs 112 crore work order from Bokaro Steel although the public sector steel company placed the order directly to the corporation with no middleman involved.    

 

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