Selloff tug-of-war leaves Maruti stranded
Change of course in first five months
Ministry wants cap on WiLL phone rental to go
CII shows how to set stocks alight

Calcutta, Oct. 7: 

Suitors elusive as ministers spar

Two down, eleven to go: the government’s divestment plan may have finally got off the ground last Friday after it cleared the sale of CMC Ltd to the Tatas and Hindustan Teleprinters Ltd to Himachal Futuristic Ltd, but it appears to be getting nowhere with the really big ticket items in its selloff basket.

The selloff plan for Maruti Udyog, the country’s largest car maker, appears to have hit a major gridlock with neither Suzuki Motor Corporation nor the financial institutions keen to pick up the government’s portion of the proposed Rs 400 crore rights issue.

Suzuki sources said the Japanese auto major, which has a 50.5 per cent stake in the car venture, “is very happy with its current holding and does not intend to pick up any further equity in MUL.”

This means that the government’s ambitious plans to divest a roughly 10 per cent stake in the company through the rights issue in the first phase appears to be foundering.

The financial institutions have already said they are not interested in buying the government’s stake.

Sources also said Suzuki would block any move by the government to sell its stake to any rivals of the Japanese company, like Ford and Toyota.

“We are, however, not opposed to the idea of getting General Motors as our new partner in MUL since we already have deep business associations with it,” they added. GM’s association with Suzuki dates back to 1981. It holds a 20 per cent stake in the Japanese automobile major.

Under the terms of the Maruti joint venture agreement, Suzuki has the first refusal right if the government wants to sell its stake. “Moreover, the government has to obtain a no-objection from its partner while offloading stake in favour of any other company,” sources said.

Asked why Suzuki did not want to raise its stake in MUL, sources said they wanted to avoid any unnecessary trouble.

“We expressed our intention to raise our stake in the Indian joint venture about five years ago only to find ourselves caught in a raging controversy. We don’t want to get embroiled in that kind of dirty politics,” they said.

Already, divestment minister Arun Shourie and heavy industry minister Manohar Joshi appear to be at loggerheads over the modus operandi of the Maruti divestment.

While Shourie favours a deal with Suzuki, Joshi has been determined to block the stake sale to the Japanese car maker and wants to give the financial institutions the first option even though this violates the terms of the joint venture agreement.

Suzuki has also demanded that the government should appoint an international consultant to carry out the due diligence of the company before it can ask for a price of its holding.

Although they did not want to comment on the proposed price for the rights issue, it has been made clear that the process to arrive at a pricing strategy was something that ignited Suzuki’s disagreement with the government.

“It is not acceptable if the government unilaterally decides a price without going through the due diligence route which is a very common international standard,” they remarked.

To be fair, the government has offered to appoint three valuers to determine the price — two representing the government and Suzuki, and the third chosen by the two partners through mutual consent.

Sources, however, made it clear that Suzuki does not intend to appoint any consultant for a due diligence as “we are not going to divest our stake.”

Sources have said the government should frame a clear policy and decide on the divestment at the earliest to enable the company to function smoothly.

“So much of politicking has only made things difficult for the MUL, which is still India’s number one car company and miles ahead of the nearest competitor. The government should mean business,” they added.

Sources are optimistic that MUL will be able to make a profit of over Rs 60 crore in the current fiscal year despite the recession that has roiled the prospects for the automobile industry. The company posted a loss of Rs 269 crore last year.


New Delhi, Oct. 7: 
Maruti Udyog has hauled itself out of the red. After reporting a loss of Rs 269 crore in the year ended March this year, sources say the company has notched up a nifty Rs 10 crore net profit in April-August of this fiscal. During the corresponding five-month period of the previous year, it had registered a loss of Rs 100 crore.

In 2000-01, the carmaker had recorded an operational profit of Rs 93 crore on a turnover of Rs 9,253 crore.

Maruti Udyog managing director Jagdish Khattar admitted that the company was back in the black but refused to spell out the exact figures. Terming it as one of the biggest turnarounds in corporate India, Khattar said it was creditable that Maruti had achieved the growth when overall passenger car sales had dropped 6 per cent in April-September.

“We have now closed the first half of 2001-02 with a profit which can only be attributed to our engineers,” said Khattar.

“It is their work that increased the localisation of our cars by a degree. At this level, that means a lot less expenditure. So Maruti’s return to profitability is an overall team effort.”

“In a depressed market, we achieved a sales growth of nearly 6 per cent. Average defects per car have come down while productivity has increased. Our engineers, along with Suzuki experts, have worked closely with vendors to increase localisation of our new models.

Even Versa — the new multi-purpose vehicle that the company plans to introduce by the end of this month — will have above 70 per cent localisation. The number of cars that used to be produced in six shifts are now produced in five. We have created an extra capacity of 30,000 cars,” Khattar said.

“Despite a net profit now, there is an uphill task as the car market remains uncertain. Global events could affect the domestic economy through currency fluctuations. So we have not set any target for the year.”

“MUL notched up a 62 per cent market-share in September. The company has sold 1,70,269 units in April-September 2001 against 1,61,370 units in the same period last year,” Maruti sources said.

Although the months of April to August had been good for Maruti, there has been a dip in September with prospective customers deferring purchases which has hurt car sales in north India.

Despite the sluggish trend, the company sold 28,745 units in September 2001, sharply down from 34,873 units in September 2000.

“The biggest factor that led to our loss last year was the depreciation provision of Rs 342 crore. The cost of machinery is going to be even higher in 2001-02. So far, we have performed well to cushion the impact of this provision,” Khattar said.


New Delhi, Oct. 7: 
The communications ministry will approach the Telecom Regulatory Authority of India (Trai) to revise the flat rental of Rs 450 fixed for wireless in local loop-based (WiLL) mobile services to be offered by Mahanagar Telephone Nigam (MTNL).

“We will request Trai to remove the flat rental and make it more flexible, like changing it to a ceiling or slab price. The government aims to offer customers telephone services at the lowest possible price,” communications minister Pramod Mahajan said.

Mahajan today launched Garuda, the 20,000-line WiLL-based mobile phone service, making the first call to his deputy, Tapan Sikdar, in Calcutta. The MTNL board will set within two weeks the tariffs for the service, which will be offered in Delhi and Mumbai.

“We want to provide customers service at cost-based prices. We are not looking to make it a revenue-spinner. We are even ready to waive the Rs 10,000 deposit if subscribers get their own handsets,” said Mahajan.

The minister told MTNL to pull up its socks, or get out of the fray. It must make sure that the number of new subscribers it wins over from January next year matches that of private operators in the two cities. He came down heavily on officials for not promoting the company’s Global System for Mobile Communications-based (GSM) mobile service, offered under the Dolphin brand name in Delhi.

“I am against monopoly, but on a level-playing field, I would like my service to be the best. I don’t want to see my Dolphin drowning, or Garuda becoming a crow.”

In an indirect message to private cellular mobile service providers, Mahajan said: “I am not concerned about who is going to get affected, the government is determined to promote the best services, using the most modern and affordable technology available. If the existing operators feel they have been affected, they should try to use this technology to enter the race. They must understand that MTNL is competing with them using the same technology.”

Shyamal Ghosh, secretary, department of telecommunications, said MTNL offers GSM and WiLL-based mobile services, but the two are different and do not eat into each other’s revenues. “With today’s re-launch, the WiLL service, which has had a chequered career since its launch in 1999, will be rejuvenated.”

Mahajan will lead a team consisting of industry leaders from the information technology and telecommunications sectors and CII executives to Singapore, in the absence of Prime Minister Atal Bihari Vajpayee.


New Delhi, Oct. 7: 
The Confederation of Indian Industry (CII) has outlined a seven-pronged strategy to revive the flagging stock markets and take the sensex beyond the 4,000 level in the next three months.

The stock markets have been identified by the chamber as the third most important area that the government needs to focus on, to provide a boost to the economy. The other two areas identified by the chamber are divestment — where the government finally managed to break the jinx with the clearance of the sale of a substantial stake in CMC and Hindustan Teleprinters — and implementation of infrastructure projects.

The chamber says the Reserve Bank of India (RBI) should cut interest rates by 1-1.5 per cent in tune with the rate cuts announced by the US Federal Reserve and the European Central Bank, as the first step towards the infusion of liquidity into the bourses.

Although a rate cut may not actually spur investments, it would provide a positive signal to the equity markets, the CII feels.

The RBI has already initiated measures to encourage bank lending to market intermediaries against share collateral, with safeguards such as banks immediately liquidating the stock in the event of a margin shortfall. However, the CII said the 40 per cent margin is too high and should not exceed 25 per cent. The CII suggested reintroduction of the system of margin trading without the negative attributes of the banned badla system. It emphasised the need to remove margin requirements for FIs and FIIs immediately which was earlier introduced to prevent institutional selling of shares. The CII also said Sebi should increase the annual limit on creeping acquisitions to 15 per cent instead of 10 per cent now and the two-way fungibility between ADRs/GDRs should be re-drafted and reinterpreted.


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