BAT gets VST support, set for showdown with ITC
Bombay Dyeing to buy back at Rs 60 a share
Britannia offers Rs 750 a share
Telco suffers Rs 500 cr loss, skips dividend
Truncated shift at tractor unit of M&M
Watch on UTI to be tightened
Transfer pricing norms by month-end
Software exports likely to grow 40% this year
Foreign Exchange, Bullion, Stock Indices

June 14: 
In a move that may trigger a fresh battle for space in the Indian tobacco industry, British American Tobacco (BAT) plc of the UK has decided to move the Foreign Investment Promotion Board for permission to raise its stake in VST Industries, putting it on a collision course with Calcutta-based ITC in which the British tobacco giant is the single largest shareholder.

The board of VST Industries today cleared a resolution permitting BAT to raise its stake in the Hyderabad-based cigarette maker. BAT has a 32.16 per cent stake in VST.

Commenting on the issue, VST chairman A. Basu said: “It (BAT) has been with us for over half a century and helped us a lot. We want BAT to be with us in our journey of sustained growth of the company.”

Basu also said the company will urge the ITC to support BAT to the fullest.

The VST chairman hinted that BAT could raise its stake either through the preferential allotment route or direct purchases from the market.

“The next logical step for the company is to move the FIPB following the VST board’s decision to support our move,” a BAT spokesperson told The Telegraph, on the phone from London.

BAT had had a run-in with ITC a few years ago when it wanted to set up a wholly-owned subsidiary to make Benson and Hedges and 555 cigarettes for the domestic market. However, the FIPB insisted on a no-objection certificate from ITC which the Calcutta-based company refused to give, souring relations between the two cigarette makers. Later, BAT relented and permitted ITC to manufacture the two cigarette brands under a franchise agreement.

ITC sources refused to comment on the latest development. But in the past week, its officials have indicated to certain sections of the media that they would shoot down any request for a no-objection certificate.

The BAT spokesperson refused to say whether any such request had been made. “We are in the process of finalising the formalities required for FIPB approval. That’s all we have to say at the moment,” she added.

Although the move is likely to snowball into yet another controversy between BAT and its Indian associate ITC, the global tobacco major is unfazed. “ In our view, India is a very strong market and we have a long term interest,” she said.

The BAT spokesperson repeated that the open offer price of Rs 151 quoted by Bright Star Investment did not reflect the true value of the Hyderabad-based tobacco company. However, she refused to set a ballpark figure that BAT felt reflected the intrinsic worth of the VST scrip.

Bright Star, BAT in talks

Meanwhile, there is indication that Bright Star and BAT will meet shortly to arrive at a tangible solution to the crisis. Confirming the development, John Band, CEO of ASK Raymond James, the lead manager for Bright Star, said “we have an agreement to meet BAT representatives after the open offer is officially declared as closed.”

Clarifying that “no agenda has been set for the meeting,” Band said “BAT and Bright Star are the two largest shareholders in VST; our interests are therefore mutual.”


Mumbai, June 14: 
Bombay Dyeing & Manufacturing Company Ltd, the Nusli Wadia group flagship, today announced a buy-back price of Rs 60 per share, to mop up around 25 per cent of the company’s equity. Bombay Dyeing today informed the bourses that it would buy back fully paid equity shares of the company from the open market, up to 25 per cent of its existing share capital, till a limit of 1,02,50,457 equity shares, at a price not exceeding Rs 60 per equity share.

While the promoters now hold over 40 per cent in the company, it could not be immediately ascertained what their stake would be if they succeed in mopping up the entire target. Company officials were also not available for comment.

The promoters’ total outgo on account of the buy-back, at Rs 60 per share — a premium of 16 per cent over the closing price of the scrip on the Bombay Stock Exchange (BSE) today — is estimated to be over Rs 60 crore.

The Bombay Dyeing scrip was up by more than 12 per cent, closing at Rs 51.55 on the BSE today. While the scrip opened at Rs 49.60, it had shot up to a day’s high of Rs 52.65. The counter witnessed 6374 trades resulting in a turnover of Rs 7.2 crore.

The company’s move to buy back shares had been anticipated by the markets over the past few weeks. In fact, the speculations gained currency following the aggressive acquisition of a slice of its equity by jute baron Arun Bajoria last year.

Bajoria had cornered around a 13.5 per cent stake in the company. Subsequently, reports said he had scaled down his stake by over 8 per cent.

Recently, many corporates, particularly the multi-nationals, have consolidated their holdings, taking advantage of the relatively low share prices. Some of the prominent domestic companies that announced buy-back offers include Finolex Industries, Reliance Industries Ltd and Indian Rayon among others.

Though it was not known how the Wadias plan to finance the buy-back programme, industry circles feel they are likely to fund it through internal accruals.


Mumbai, June 14: 
Biscuit major Britannia Industries Ltd today announced its plans to buy back up to one million shares at a price not exceeding Rs 750 per share.

A decision on the issue was taken at a board meeting of the company held today and Britannia informed the bourses that the outflow on this count will not exceed up to Rs 55 crore.

The buy-back price indicates a premium of 15 per cent on the scrip’s closing price of Rs 651.80 on the Bombay Stock Exchange (BSE) today.

The company’s equity capital now stands at Rs 28 crore, with France’s Group Danone and Nusli Wadia both said to hold around a 25 per cent stake.

A senior FMCG analyst said while the buy-back would raise the promoters’ holding in the company, it is too early at this point of time to predict the precise level of increase.

“The company now has a market capitalisation of Rs 1800 crore and the buy-back may not make a significant impact on the promoters’ holding,” a top analyst covering the sector pointed out.

Britannia, which is a major player in the bakery segment, recently ventured into dairy products.

Analysts point out even as leading FMCG giants have been posting a marginal rise in topline growth, Britannia is one of the few companies that has turned in double digit growth rates. For the current year, the company’s topline is estimated to grow by 13-14 per cent and its flagship brand, ‘Tiger,’ alone will see a 2-23 per cent growth in volumes.

The company, which has identified the dairy business as a significant area of growth (which includes cheese and dairy whiteners), expects contribution from this segment to touch more than 25 per cent of its turnover in the next couple of years.


Mumbai, June 14: 
Tata Engineering & Locomotive Ltd (Telco) — the auto major with interests spanning from commercial vehicles to passenger cars—has suffered a massive loss of Rs 500.34 crore in the last financial year as against a net profit of Rs 71.20 crore in the previous year. In view of the losses, the board has not recommended dividend for the reporting year.

Telco attributed the loss to adverse market conditions like continued slowdown, increase in sales tax rationalisation and substantial increase in diesel prices which have been plaguing the commercial vehicles industry.

It revealed that adverse market conditions resulted in a drop of Rs 694.12 crore in sales (7.89 per cent) to Rs 8,095.79 against last year’s Rs 8,789.91 crore.

As a result, the profit before interest, depreciation and amortisation was lower at Rs 497.87 crore against Rs 785.77 crore last year, a company release said.

After a charge of Rs 443.58 crore (Rs 419.68 crore) towards interest, Rs 137.36 crore (Rs 82.62 crore) towards amortisation of expenses and Rs 347.37 crore (Rs 342.61 crore) towards depreciation, the company posted a loss of Rs 430.44 crore (Rs 59.14 crore). Additionally, it carried a charge of Rs 69.90 crore towards extraordinary/exceptional items (against a credit of Rs 134.34 crore) resulting in a loss of Rs 500.34 crore.

In the period under review, the company intensified efforts in areas of cost reduction, quality enhancement and manpower rationalisation, which saved Rs 255 crore, the company added. An additional Rs 41 crore was saved in gross interest outflow through tighter control on inventories and receivables. Exports grew by 19 per cent and accounted for 9 per cent of the total sales turnover, the release said.

Telco said, the company is continuing its aggressive cost reduction programmes and new product offerings in the passenger and commercial vehicle markets.


Mumbai, June 14: 
The domestic tractor industry in the doldrums, auto maker Mahindra & Mahindra Ltd (M&M) today said work on its Kandivali unit will be curtailed by three days next week.

In a communication issued to the stock exchanges today, M&M stated this was in response to the seasonal market demand and to ensure better inventory management.

It added that employees who are not required to be present for the three days will be paid wages as usual. M&M had only recently announced that its automotive unit will work for only five days in a week.

Coinciding with the company’s announcement, leading rating agency, Credit Rating Information Services of India Ltd (Crisil) noted that the industry has witnessed a drop in volumes from the previous year, due to a demand slowdown coupled with a capacity surplus.

“If demand fails to pick up, it could spell more trouble for the industry. Moreover, the increased expenditure on product design and development, necessitated by greater customer expectations following the entry of MNCs like John-Deere into the Indian market, can also affect profitability,” the agency pointed out.

Crisil added that smaller players like Eicher have been hit harder by the lean phase that the tractor market is passing through, as they cannot match the sales pitch of the financially stronger players like M&M and Punjab Tractors.

It said in the previous year, rating on debt instruments of the three players were lowered simply because of the increasing risk content of the tractor business.

Again, this escalation in risk, it noted, was due to the steady increase in competitive pressures across the industry.


New Delhi, June 14: 
The finance ministry is working on an ordinance to tighten surveillance of Unit Trust of India following sustained criticism of the way the state-owned mutual fund has been functioning.

While the ministry had been planning for some time to strip the UTI of its special status and bring it on a par with other mutuals, the move has gained momentum after the members of the joint parliamentary committee (JPC) probing the recent stock scam criticised the way the organisation had been functioning and demanded tighter surveillance of the giant mutual.

The government may even consider bringing in an ordinance amending the UTI Act to bring it under tighter Sebi control. An amendment is being thought of at present because it may take a long time before a full-scale legislation is passed.

Under the current regime, UTI is not bound by Sebi’s disclosure norms for mutual funds nor is it subject to surprise checks. However, Sebi does have the powers to check on its functioning periodically.

However, Sebi has rarely exercised control over the mutual fund because of the confusion and conflict over the market regulator’s powers.

UTI enjoys its superior status vis-à-vis other mutuals because of historical reasons. At the time of its formation, UTI was the only mutual fund operating in the country. Other mutuals and Sebi, the capital market watchdog, were formed much later.

The plans is to redraft the UTI Act placing the premier mutual fund at par with other mutual funds which are under complete Sebi regulation. All mutual funds, except UTI, have to declare their net asset values (NAVs) on a daily basis, and disclose their investment portfolios every three months.

The state-run mutual fund has been in the dock for quite some time due to a number of controversial investments including its highly-priced purchase of the shares of Reliance Industries.

More recently it was in the eye of a storm over alleged insider trading in the shares of its subsidiary, UTI Bank, and of Global Trust Bank, its partner in a merger plan that never took off.

GTB announced earlier this year it was pulling out of the proposed merger amid a barrage of allegations that it had been involved in price rigging just before the merger decision was announced to ramp up the price of its stock to unrealistic levels.


New Delhi, June 14: 
The government is likely to come out with transfer pricing regulations by the end of the month.

G. C. Srivastava, joint secretary in the finance ministry, said the transfer pricing legislation will be modelled on the lines of the one drawn up by the Organisation for Economic Co-operation and Development. OECD experts will be consulted before the final draft of the legislation is made, he said.

Speaking in a seminar on the issue of transfer pricing, John Hobster, chief executive officer for Ernst & Young’s global transfer pricing services, said what is unusual about the Indian regulation pertaining to transfer pricing (announced during the budget) is that it is high on penalties for the tax payer. He suggested that a rigorous regime can be counter-productive on many accounts.

He said Indian legislation is going by arithmetic mean in contrast to arm’s length. Arithmetic mean could work against the government, he said. The new regulations announced in February are designed to stop multinationals from avoiding tax through the abuse of transfer pricing.

The Central Board of Direct Taxes (CBDT) had formed draft rules for transfer pricing regulations. Subsequently, suggestions were invited from industry and chambers on the suggested rules by May 25. These final legislations are likely to come by the end of June or early July.

The CBDT has suggested that “arms length price” in relation to an international transactions could be determined through any five methods as stipulated by the OECD. These methods are comparable uncontrolled price method, resale price method, cost-plus method, profit split method, or transactional net margin method.

Transfer pricing has become a contentious area of international taxation. Due to the differential tax rates, MNCs shift profits to low tax locations. Some common inter-company transactions take place through the transfer of tangible goods, intangible property, inter-company services and loans.

India adopted the formal transfer policy documentation and penalty rules in 2001.


New Delhi, June 14: 
The Indian software sector isn’t spooked by the slowdown in the US economy which has forced companies there to start ratcheting down their technology spending. After recording a robust 55 per cent growth in software exports in 2000-01, the National Association of Software and Services Companies (Nasscom) today forecast that exports in 2001-02 would dip a bit but still be fairly strong at 40 per cent.

The domestic software market is projected to grow 33 per cent this year, a tad higher than the 31 per cent growth achieved last year but still adrift from the 45 per cent growth recorded during 1999-2000.

The software industry notched up revenues of Rs 9,410 crore as against Rs 7,200 crore during 1999-2000.

Software exports grew by 65 per cent at $ 6.2 billion during 2000-01 as against $ 4 billion during 1999-2000.

Overall, the software sector earned a revenue of $ 8.26 billion as against $ 5.7 billion during 1999-2000. Out of the total revenue this year, software exports contributed $ 6.2 billion while the domestic market accounted for $ 2.6 billion.

Nasscom, which today released the annual survey of software industry, has projected a shift in software exports destination from the US to Europe and Japan.

During 2000-01, India exported software and services to 102 countries around the world and about 62 per cent was made to North America (US and Canada), 24 per cent to Europe, 4 per cent to Japan and 10 per cent to rest of the countries.

The Nasscom study has indicated that Europe is fast recognising the competitive advantage that would accrue to its economy by aligning with Indian software companies.

The Indian IT software and services companies are increasingly expanding their base and re-strategising their policies to establish their presence in various European countries.

The prominent software exporters included companies like Tata Consultancy Services, Infosys, Wipro, Satyam and HCL Technologies.

The software revenues in future are expected to come from e-commerce software solutions. According to the Nasscom-McKinsey study, India can earn a revenue of $ 10 billion from e- business solutions by 2008.

IT-enabled services grew by 54 per cent with revenues estimated to touch Rs 6,300 crore during 2001-02.

IT-enabled services include services like customer interaction services, help desk, medical transcription, translation localisation, data digitalisation, animation and digital content development.

Nasscom chairman Phiroze Vandrevala said, “The Indian IT-enabled services sector has clearly emerged as the key driver of growth for the Indian IT industry. The IT-enabled industry employs 70,000 people and accounts for 10.6 per cent of the total IT software and services industry revenues.”

NIIT launches SWIFT

NIIT has started a new series of courses called SWIFT which stands for short work programs in information technology.

The 12-hour course will cost Rs 999. It will teach the basics of computer and enable students to access internet. An advanced course of 36 hours is available for Rs 2,999. Anybody interested in computers is eligible for the SWIFT course. There are no entrance tests.



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