Industry crawls out of woods
Promoters up India Cements holding by 5%
Private oil firms eye PSU storage
Firms devise novel ways to borrow cheap
Rail-GM locomotive tieup

 
 
INDUSTRY CRAWLS OUT OF WOODS 
 
 
FROM OUR CORRESPONDENT
 
New Delhi, April 7: 
The clawback has begun: industry is showing sparks of a revival and several sectors hope to catch the flood of expectations in the first quarter of this fiscal (April-June 2002).

But there’s a caveat here: the recovery will be contingent on the government’s ability to adhere to its commitment on reforms and the ability to introduce the desired changes in a post-budget scenario.

A survey conducted by Associations Council (Ascon) of Confederation of Indian Industry (CII) has revealed that while the majority of the sectors have exhibited moderate growth rates, some have exhibited clear signs of revival.

The Ascon survey — which is being released for the first time before all the figures are compiled — reveals that 65 sectors (56 per cent of the industrial sectors) have exhibited a moderate growth of 0-10 per cent

While 30 sectors (28 per cent of the sectors surveyed) have exhibited negative growth during the year. On the positive side, 15 sectors have shown high growth rates of 10 to 20 per cent, and six sectors have exhibited excellent growth of more than 20 per cent.

The survey, which covered 116 manufacturing sectors and 12 services sectors, relies on estimates for April-March 2001-02 over the actual figures for April-March 2000-01.

The report attributed the high incidence of moderate growth rates in the survey to the downtrend in the manufacturing sectors witnessed in the first three quarters of 2001-02, largely due to the overall slowdown in the economy, which had a withering impact on several major segments. However, some sectors have started showing signs of revival and may pick up in the first quarter of the current year.

The survey said the proposed spending on infrastructure and road development projects would help kick-start the growth in related manufacturing segments. To evolve strategies, to achieve 10 per cent GDP growth and to make India more manufacturing friendly, the survey highlights the need for maintaining continuity and stability in policy and urges the government to stop shuffling its bureaucrats constantly.

The study attributed low growth in several sectors mainly to the slowdown in the auto sector and slackness in the production of basic goods like crude oil, fertiliser, cold rolled steel, and consumer durable items.

Many sectors, according to the Survey, have borne the brunt of Chinese competition, free import under Indo-Nepal Treaty, competition from unorganised sector, duplication of brands and manufacture and sale of spurious products at cheaper prices in the absence of harmonisation of specifications of standards.

Following the statistics presented by the survey, CII has suggested that the government should adhere to some basic principles while attempting tariff rationalisation — the structure of customs duties should encourage greater value addition in India, this translates to lower duty on raw materials, intermediate goods and components vis-à-vis the final products.

Second, the net effect of customs duties must never result in negative effective rates of protection (ERP). Third, the tariff rationalisation should closely correspond to internal domestic reforms in infrastructure, financial sector and labour laws as this will not only signal a credible schedule but also link the timetable with easing of supply-side restrictions. Fourth, the duty rates should at least be brought down to a minimum of three common rates and five exceptional rates by 2004.

Further CII said there was a need for raising abatement on MRP on many products. “To make the products more competitive, the cascading effect of local taxes like sales tax, octroi, entry tax, luxury tax needs to be reviewed,” it said.

It depicts the downtrend in sales pertaining to 66 sectors. Eighteen sectors show negative trend, 40 sectors show moderate growth of 0-10 per cent , eight sectors account for high growth of 10-20 per cent and only one sector achieved excellent growth of more than 20 per cent.

The survey reveals that exports have suffered a major setback. Of the 48 sectors for which data are available, only five sectors have excellent growth, 9 sectors have shown high growth, 17 moderate and 17 sectors account for negative growth in the case of exports.

The number of sectors that have shown excellent growth have decreased from 14 in the last year to five and in high growth sectors from 11 to 9 in the estimated April-March 2001-02.

   

 
 
PROMOTERS UP INDIA CEMENTS HOLDING BY 5% 
 
 
BY ANIEK PAUL
 
Calcutta, April 7: 
India Cements’ performance in the last financial year may not have been impressive, but the promoters are, nevertheless, bullish on its business. This is evident from the fact that they increased their holding by 4.9 per cent through the creeping acquisition route in the last financial year. Their stake in the company stands at 45.12 per cent now as against 40.22 per cent a year ago.

The promoters raised their stake by 68.37 lakh shares during the year at an investment of over Rs 20 crore, while the institutional investors pared down their holding in the company.

The combined holding of the institutions—both domestic and foreign—stands at a shade below 32 per cent. The Life Insurance Corporation of India (LIC) has a large holding of 15.68 per cent in the company.

Two subsidiaries of General Insurance Corporation—New India Assurance and Oriental Insurance—have a combined stake of 5.16 per cent, while the Unit Trust of India holds 1.62 per cent.

Among the foreign institutions, Salomon Smith Barney holds close to 3 per cent. The total FII holding in the company stood at 6.47 per cent on March 31. Public holding in the company is now pegged at 22.9 per cent.

India Cements, which has a production capacity of 10 million tonnes per annum, holds a 28 per cent share of the cement market in the south. It recently decided to sell off its entire holding in subsidiary Sri Vishnu Cements, to Zuari Cement, for a consideration of over Rs 360 crore.

Sri Vishnu Cement with its 1 million tonne production capacity had come under the India Cements fold in 1999, capping its aggressive acquisition spree between 1997 and 1999.

India Cements posted a turnover of Rs 1,450 crore in the 2000-01 fiscal, but in the first three quarters of the last financial year its revenues dropped 13 per cent to Rs 802.41 crore.

Further, the company posted a loss of Rs 45.5 crore in the nine months till December 2001, as against a profit of Rs 37.8 crore in the corresponding period of the previous financial year.

   

 
 
PRIVATE OIL FIRMS EYE PSU STORAGE 
 
 
FROM VIVEK NAIR
 
Mumbai, April 7: 
The dismantling of the administered price mechanism (APM) may have paved the way for private players to market petroleum products, but no one is rushing in with branded petrol or retail outlets.

At least, not yet. The reason behind the delay is that private players keen on retailing petrol or diesel will first have to invest in infrastructure, that includes storage and handling facilities, which could support their retail forays.

Faced with the twin issues of investing huge sums of money that could run into hundreds of crores to set up a decent infrastructure on one side, and the sheer time required to build such a back-end necessity, a few private sector players are trying to impress upon their public sector peers to allow them the use of their existing infrastructure.

The presence of such facilities has assumed extra significance as these are touted to be a critical differentiating factor in a competitive market, leading to cost advantages. Industry circles do not rule out the possibility of this even getting reflected in prices of petroleum products being sold through the retail outlet of a PSU major.

“A PSU major who leases out his infrastructure to a private sector participant can pass this revenue gain to the product he markets from his outlets, selling it cheap vis-à-vis others who do not have such a facility,” says an industry source.

Though PSU oil majors like Indian Oil, Hindustan Petroleum and Bharat Petroleum are not averse to such an arrangement as it can bring in additional revenues, an amicable solution is yet to be found.

However, a senior official from a leading PSU pointed out that even if the company would be willing to share its facilities, such an arrangement will depend on commercial considerations and whether it has spare capacity.

“This is a rather difficult proposition. On one hand, they want to share my facilities and yet compete against me. Therefore, the issue is will the existing oil companies obtain market determined prices on leasing their facilities, and, secondly, if any spare capacity exists to be leased,” he said.

However, most private sector players who are channelling all their investments into the front-end of the retail business (petrol pumps), aver that setting up some of the infrastructure facilities, such as pipelines, service stations at airports, besides other storage facilities, would be extremely difficult, if not impossible to create.

An official heading the marketing business of a Mumbai-based firm said that since the entry of new players will not add to existing volumes, but only result in the same volumes being shared by more players, the government must allow utilisation of existing infrastructure, some of which are, in fact, under-utilised.

RPL retail outlets

Reliance Petroleum Ltd (RPL) has sought the government’s nod to market 10 million tonnes of diesel and 2.4 million tonnes of petrol annually through a network of 5,849 retail outlets across the country.

RPL has applied for marketing rights for transportation fuels in the format prescribed by the government in its March 8, 2002, notification, sources said here.

   

 
 
FIRMS DEVISE NOVEL WAYS TO BORROW CHEAP 
 
 
FROM SATISH JOHN
 
Mumbai, April 7: 
Companies—including loss-making ones—are devising ingenious ways of raising cheap debt by securing the highest credit ratings.

Structured debt instruments, which enable even loss-making companies to secure “triple AAA,” indicating maximum safety and the highest degree of certainty regarding timely payment of the money raised through the financial instrument, are unique to these times.

Premier rating agency Credit Rating Information Services of India Ltd (Crisil) recently assigned an ‘AAA (FSO),’ (“AAA foreign structured obligation”) to Tata Teleservices (TTL), a loss-making company. This rating indicates the highest degree of certainty regarding timely payment of financial obligations on the instrument. The rating enables it to raise funds at rates that are comparable to that of blue-chips such as Hindustan Lever.

Tata Teleservices is the telecom vehicle of the Tata group, through which the latter provides basic telephone services in the country. The high rating was assigned on the company furnishing an irrevocable and unconditional guarantee from Nederlandse Fin Maatschappji voor Ontwikkelingslanden NV (FMO), a multilateral development institution based in the Netherlands.

FMO, a Dutch development financial institution, was established in 1970 by the Government of Netherlands, several Dutch companies and trade unions. Its core business is to provide long-term funding to private companies and financial institutions in developing countries primarily through long-term loans and equity investments. The company also provides guarantees for third-party investments in developing countries and plays an active role in syndicated loans.

Incidentally, TTL, an unlisted company, has made a loss of Rs 148 crore on sales of Rs 86 crore. On being quizzed, Crisil officials say that the trend is bound to pick up in the coming days, as more and more companies look at ways to raise cheaper debt.

Bharti Tele Services and Ballarpur Industries (BILT) secured a double “AA” rating by securing the partial guarantee of International Finance Corporation (IFC). Thus the companies were able to secure loans at 10.5 per cent for bonds worth Rs 225 crore and Rs 290 crore respectively.

Credit enhancement measures are also possible through an escrow mechanism, by earmarking certain revenues for repayment of a particular debt and thus securing a better rating. Similarly, securitising of loans is also being increasingly used to raise cheaper debt.

Speaking to The Telegraph, D Thyagarajan, director, structured finance ratings at Crisil, said: “More transactions are expected in the future. Companies perforce are looking at these options as there is a market only for high quality debt papers.”

   

 
 
RAIL-GM LOCOMOTIVE TIEUP 
 
 
FROM OUR CORRESPONDENT
 
New Delhi, April 7: 
While the government has failed to impress upon the Japanese car major Suzuki Motor Corporation to transfer the gear-box technology, Indian Railways has bought 85 per cent of technology from General Motors at a cost of $ 17.5 million to manufacture high-speed locomotives in the country.

This is the first exclusive arrangement which has been entered upon by General Motors Electro-Motive division with Indian Railways. The Diesel Locomotive Works (DLW) at Varanasi will roll out its first indigenously manufactured locomotive on Monday.

GM also plans to increase its outsourcing of components from India for manufacture of locomotive equipment. Currently, about 20 local manufacturers supply equipment to GM locomotives and have earned total revenues of $ 8 million in the last 18 months. The cost of manufacturing a locomotive is around Rs 8 crore.

Currently, the Varanasi unit manufacturers about 30 locomotives and has set a target to roll out of 150 annually. Frank Ward, director international sales and associate support (Asia Pacific, Mid East,Africa and Latin America), said: “General Motors is one of the leading manufacturers of diesel locomotives in the world. Of the total 85,000 locomotives manufactured today, GM’s contribution is close to 57,000.”

   
 

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