Telco gears up to turn into world’s small-car hub
Bears trample stocks again
FMCG to be ITC growth engine in the future
Shourie faces selloff heat
Drought clouds prospects
Rajdhani fare cut plan put on ice
Ceat on turnaround track
Gail due diligence on Haldia Petro next week
Review meet on Bengal power reforms today
Foreign Exchange, Bullion, Stock Indices

 
 
TELCO GEARS UP TO TURN INTO WORLD’S SMALL-CAR HUB 
 
 
FROM OUR CORRESPONDENT
 
Mumbai, July 26: 
If all goes to plan, Telco will be thronged by a bevy of global auto majors buying small cars from the company for sale under their own marques.

That’s how Ratan Tata sees the company he heads revving up for a future where its grip on commercial vehicles will have to be strengthened and new areas explored.

“The passenger vehicles market is like a moving target. There are niche product areas in car manufacturing. Small car is one such niche area,” Tata told shareholders at Telco’s annual general meeting (AGM).

Global car giants, he said, could think of tapping the engineering skills of manufacturers like his company. The remarks carry significance since they come against the backdrop of reports in foreign papers suggesting the likes of Fiat, General Motors and Suzuki are finding out ways to pool resources in product-sharing, cross-branding and engine procurement.

Analysts say this realignment among global car majors could spell trouble for independent car-makers like Tata Engineering, unless they join forces with other companies in outsourcing technology and products.

To that end, Tata confirmed negotiations with Rover to market Indica in the UK were under way. At the same time, there were reports — later scotched — a few years ago of a possible alignment with Daimler Chrysler, which analysts say holds a sliver of Telco’s equity.

At the AGM today, considerable time was devoted to explaining a Rs 1,100-crore write-off in the first-quarter accounts of the company. Tata was visibly peeved when a shareholder likened that accounting treatment to the rip-offs that occurred at Enron and E-Merck.

“I feel offended for you have compared it with Enron, where monies were siphoned out and personal gains made. We have done it with total transparency by getting approvals from courts and shareholders.” Without the write-off, he said, a dividend would not be possible in the near future.

While car division would continue to make money, Tata said the new strategy drawn up by the company aims to consolidate leadership in the commercial vehicles segment.

The coming days, Tata said, will see fewer, but bigger, commercial vehicles rolling on the highways as better roads and tighter economics lead to a spike in demand for multi-axle trucks. Telco, he added, will be ready to tap the demand with vehicles in each segment.

Haldia Petrochem

Asked why the company was still investing in Haldia Petrochemicals, a company that is not a core business and in which the management had already decided to divest its stake, Tata said there has been no change in thinking.

“We have decided to divest our holding to the Bengal government. The investment was made in 2001-02 after assurances from the state government that it would buy the stake, including fresh investments made during the year,” the Telco chief said.

   

 
 
BEARS TRAMPLE STOCKS AGAIN 
 
 
FROM OUR CORRESPONDENT
 
Mumbai, July 26: 
The bears on Dalal Street crawled out of the woodwork, sending shares on the Bombay Stock Exchange (BSE) into another tailspin and knocking the benchmark sensex by 70.61 points to 3024.35 at close.

“The breeze blowing from the overseas markets was worse than El Nino,” was how a dejected dealer summed up the gloom enveloping the market in recent weeks.

FIIs, which had been net sellers to the tune of Rs 129 crore on Wednesday, continued to offload holdings in software companies as well as important old-economy companies like Hindustan Lever and Reliance.

Local institutions joined the selling spree, dumping blue-chips along the way. The combined onslaught forced many operators with large positions to sell heavily to escape a loss on the last day of trading this week.

The 30-share index opened sharply lower at 3079.33 and gradually moved downwards to its intra-day low of 3011.89 before ending the day at 3024.35 compared with Thursday’s finish of 3094.96, recording a fall 2.28 per cent.

The week saw the honeymoon in mid-cap stocks being cut short — a fact reflected in the loss of 41.77 points in the BSE-100 index, which closed at 1534.04 against 1575.81.

The slide at home followed steep losses in Asian markets, where investors saw the value of their investments melting away in a week that began and ended in agony. What left the sentiment more fragile was the decline in tech stocks on Wall Street on Thursday, a day after the Dow Jones racked up the second largest session gain.

The markets had been bracing for a bear assault as the Nasdaq dropped 50.15 points last night. In south-east Asia, the Nikkei and the Hang Seng finished plunged 338.88 points and 111.66 points respectively.

   

 
 
FMCG TO BE ITC GROWTH ENGINE IN THE FUTURE 
 
 
OUR BUREAU
 
Calcutta, July 26: 
Winds of change are now blowing through the corridors of Virginia House. ITC Ltd, the numero uno cigarette maker of the country, is now sniffing cash in the fast moving consumer goods (FMCG) segment.

Buoyed by the initial success, ITC chairman Y.C. Deveshwar is now aiming at a turnover of Rs 5,000 crore from the FMCG business in 10 years.

The FMCG business of the company had raked in Rs 22 crore in revenues last year. The fledgling business comprises branded apparels, greeting cards and packaged ready-to-eat food that was launched recently.

To achieve the target, ITC will leverage its rural sourcing and distribution channel—e-choupal—which has now reached 6,000 villages.

According to Deveshwar, ITC is setting up four e-choupals a day at an investment of Rs 1.5-3 lakh each.

ITC intends to use this grand click-and-mortar channel, often referred to by Deveshwar as a “distribution superhighway”, to distribute goods and services, even produced by others, across the country.

Deveshwar said the company was ready to invest up to Rs 100 crore in its e-choupal initiative to cover up to one lakh villages within seven to eight years.

The e-choupal project, Deveshwar said, had the double advantage of cutting out wasteful intermediaries, thus providing a better price realisation for farmers and also giving cost advantage to end users like plants.

Stake in EIH

Deveshwar today scotched rumours about the tobacco giant making a takeover bid on EIH Ltd, but said the company has made “strategic investment” in the hotel major.

“It is not our intention to make any hostile takeover bid. We do not want to be a predator,” Deveshwar said.

When asked about the purpose behind ITC picking up a sizeable stake in EIH in recent times, he simply said “it is a strategic investment.”

   

 
 
SHOURIE FACES SELLOFF HEAT 
 
 
FROM OUR CORRESPONDENT
 
New Delhi, July 26: 
Disinvestment minister Arun Shourie today came under fire both in Parliament and outside over his plans to sell the government’s stake in key PSUs such as Indian Oil Corporation, Oil and Natural Gas Corporation, Bharat Sanchar Nigam Limited, Gas Authority of India Limited and National Thermal Power Corporation to rake in over Rs 50,000 crore.

Opposition members in the Lok Sabha criticised the plan and demanded a more detailed discussion on the issue some time next week, while the All India Trade Union Congress (Aitcu) accused Shourie of ‘selling the family silver’.

The government has budgeted for divestment proceeds of Rs 12,000 crore this year, but Shourie could raise four times that figure if he can drum up support for his fast-track divestment programme.

Shourie said strategic disinvestments had been beneficial for companies like Modern Foods, which was taken over by Hindustan Lever. “Sales at Modern Foods have almost doubled and production of Paradeep Phosphates is reported to have tripled. The earnings of workers at Modern Foods have risen by Rs 1,600 per month and those of Paradeep Phosphates shot up by an average of 29 per cent,” the minister said.

Shourie announced that the government was planning to divest the government’s stake in 31 PSUs to yield over Rs 50,000 crore plus. A sum of Rs 5114 crore has been realised from the privatisation of seven PSUs.

Sources in the disinvestment ministry said: “The government is also ready to offload 10 to 25 per cent equity in oil majors like HPCL and BPCL before floating a public issue. The government has also been advised to draw down the cash reserves in various units along the lines of an exercise carried out in the case of recently privatised Videsh Sanchar Nigam Limited.”

   

 
 
DROUGHT CLOUDS PROSPECTS 
 
 
BY A STAFF REPORTER
 
Calcutta, July 26: 
The drought in Andhra Pradesh and central India is likely to depress ITC’s performance this year. Though in the first quarter of the year, the company posted a robust growth—both in turnover and profit—the effect of inadequate rainfall will be felt over the rest of the year.

Asked whether ITC was threatened by the drought, chairman Y.C. Deveshwar said: “Drought always affects. But it may be a little too early to predict the extent of the damage. We are waiting for the government to assess the situation. We understand that the government will assess the damage at the end of this month.”

At least two of ITC’s key businesses may be affected by the drought: tobacco and its fast growing agri-business that deals with soya, coffee, wheat, rice, marine products and wood fibre among others. ITC’s paper business too may be affected, though to a lesser degree.

So far, the soya business in central India has been hit. Wheat too has been affected to some extent, but the drought has had no impacted on the tobacco business as yet. “If the crops suffer—which looks likely—prices will increase, and margins from trading in the commodities will be depressed,” said an analyst.

Turnover up 21%

The company’s performance in the first quarter, however, was impressive. It posted a 15 per cent growth in post-tax profit and a 21 per cent growth in turnover.

ITC’s net profit in the quarter was Rs 343.92 crore as against Rs 298.44 crore in the corresponding period of 2001-02. Gross income was Rs 2,747.78 crore. Earning per share for the quarter was Rs 13.90 whereas the same for the first quarter of 2001-02 was Rs 12.06.

Earnings from the tobacco business was 10 per cent higher at Rs 2,204.85 crore, despite pressure on volumes. Cash flow from the cigarette business was Rs 497.35 crore, 7.6 per cent higher than the corresponding quarter of the last year.

Substantial growth was achieved in the agri-business. Revenues from the agri-business grew 130 per cent to Rs 432.72 crore, and cash flow jumped nearly nine times to Rs 36 crore.

Revenues from the paper and packaging business was 11 per cent higher at Rs 273.5 crore. Cash flow increased by over 50 per cent to Rs 46.53 crore.

   

 
 
RAJDHANI FARE CUT PLAN PUT ON ICE 
 
 
FROM OUR SPECIAL CORRESPONDENT
 
New Delhi, July 26: 
The railway ministry has put its proposal to cut fares of AC two-tier and first class air-conditioned class in Rajdhani and Shatabdi trains in abeyance.

The internal committee of the Railways has submitted the report to rail minister Nitish Kumar. He had asked the Railway Board to assess losses to the Railways because of the fare cuts announced by Indian Airlines and other private airlines in 48 sectors for three months from August to October.

“At a meeting held last week, the minister said any decision on a cut on ticket prices would have to be made only after a proper assessment of how the airline fare cuts had impacted the Railways. So, there is unlikely to be any change over the next three months.”

Latest reports indicate that the airlines are limiting the discounted fares to a very small proportion of the total passenger seats as they do not want to undermine the profitability of their operations.

“When we calculated, we took an average of the total passengers who travel by train during that three-month period and the total number of passengers who fly. We also factored into our calculations the average of the number of flights and the number trains both ways. The numbers indicate a no-loss situation in a short-term period,” sources added.

Today, minister of state for railways Bandaru Dattatraya informed the Rajya Sabha in a written reply that there was no proposal to reduce rail fares.

Nitish Kumar had asked the Railway Board to make an assessment and prepare a contingency plan to meet the challenge, after the two domestic airlines —Indian Airlines and Jet Airways—slashed their airfare for advance-booked passengers on a large number of routes last month.

Both airlines had offered lower fares of Rs 3,292 from New Delhi to Chennai for a period from August 1 to October 31 as against the normal fare of Rs 8,960. The reduced fare could be availed of only if the booking is done 21 days in advance. The rail fare for this sector by two-tier AC in Rajdhani Express is Rs 3,415 and in Tamil Nadu and GT Express is Rs 2,279.

The Railways’ total earnings from passenger traffic stood at about Rs 13,450 crore during 2001-2002. The two-tier AC passengers contributed about Rs 1,000 crore to its kitty, followed by three-tier AC passengers with Rs 800 crore; the air-conditioned chair car passengers contributed Rs 300 crore while Rs 175 crore came from first class passengers. The Rajdhani and Shatabdi Express trains contributed Rs 160 crore.

   

 
 
CEAT ON TURNAROUND TRACK 
 
 
FROM OUR CORRESPONDENT
 
Mumbai, July 26: 
Tyre major Ceat Ltd continued on the turnaround path by clocking a net profit of Rs 5.95 crore for the first quarter ended June 30, 2002 against a loss of Rs 2.95 crore in the same period of the previous year.

The performance comes in the backdrop of better times being faced by the automobile industry. Ceat posted a 10 per cent rise in gross sales to Rs 352.23 crore against Rs 320.77 crore in the corresponding quarter last year. Net sales during this period rose to Rs 284 crore against Rs 260 crore.

Buoyed by this performance, the company plans to clock sales of Rs 1500 crore this year by increasing its market share in all key segments of truck, LCV, passenger and two-wheeler tyres.

Ceat managing director Paras K Chowdhary said after witnessing maximum growth in the truck segment, the company is now focussing on two/three wheeler tyre segment. The plan involves doubling its market share in this segment over the next 12 months. The company has already started outsourcing its products in this segment from two new manufacturing facilities at Hyderabad and Baroda.

The outsourcing model is also being successfully utilised in truck tyres, where the company is sourcing products from its subsidiary in Sri Lanka and from Tyre Corporation of India Ltd, Calcutta. Ceat’s market share in the truck and LCV tyre segments has climbed up to 17 per cent and 18 per cent respectively. For the current year, this is estimated to go up to 20 per cent.

Chowdhary attributed Ceat’s turnaround to a combination of various factors that included the induction of a new management team, greater customer focus through the introduction of new products in various segments and an aggressive sales & distribution strategy. “In sales and distribution, the company rationalised pricing and discounts to dealers apart from also increasing dealer network,” he said.

Moreover, Ceat plans to bring down costs by retiring high cost debts using internal generation. Senior officials of the company here said that its total debt as of March 31, 2002 stands at Rs 550 crore. The company hopes to retire close to Rs 50 crore of these debts in the current year.

Ceat is also looking at the possibility of pruning its manpower by offering a voluntary retirement scheme (VRS) from the present employee strength of 4,800.

Meanwhile, the company is planning to hike tyre prices in August following a rise in natural rubber prices. Sources here said that while rubber prices have gone up by 5 per cent, Ceat had hiked tyre prices by 1 per cent in the month of July. A similar such reduction is expected in the ensuing month.

However, company officials admitted that its margins would be under pressure due to sharp increase in raw material prices and its inability to fully pass it to the customers.

HPCL Q1 net dips 27.95%

Hindustan Petroleum Corporation Ltd has reported a 27.95 per cent drop in its net profit at Rs 116.62 crore for the first quarter ending June 30, 2002 as against Rs 161.95 crore in the same period of the previous fiscal.

Net sales and income from operations were, however, higher by 8.43 per cent at Rs 12,362.89 crore during this period as against Rs 11,400.75 crore a year ago, a company release said today.

The company said marketing margins were affected due to continuation of retail prices of motor spirit, high speed diesel, LPG (domestic) and kerosene at the existing level while international prices had risen. The prices of LPG and kerosene were partly subsidised by the government. Pending finalisation of the subsidy scheme an ad hoc amount of Rs 160 core released by the government has been accounted, it said.

Crude throughput in the first three months of this fiscal was higher at 3.12 million metric tonnes (MMT) compared with 2.98 MMT in the first quarter last fiscal.

Market sales, including exports were also higher at 4.69 MMT as against 4.43 MMT in the previous fiscal.

   

 
 
GAIL DUE DILIGENCE ON HALDIA PETRO NEXT WEEK 
 
 
BY SUTANUKA GHOSAL
 
Calcutta, July 26: 
The Gas Authority of India Limited (Gail), which has decided to invest Rs 200 crore in Haldia Petrochemicals Limited (HPL), will start due diligence of HPL from next week.

Sources said Gail may appoint an international consultant for carrying out the due diligence.

“Gail will mainly focus its attention on the financial condition of HPL and will try to see whether its investment in HPL is justifiable,” sources said.

The HPL management is also gearing up to assist Gail in its due diligence exercise. “We have received a formal communication from Gail about their intention to invest in HPL. They have also informed us about the due diligence exercise. We are also setting up our internal resource team who will assist Gail,” a senior HPL official said.

The promoters of HPL—The Chatterjee Group and the Bengal government—are keen that the due diligence happens first and the investment comes in within September 30.

“September 30 is very crucial for the company. If we fail to bring in a promoter and fail to clear the interest burden then all the banks and financial institutions will declare the company a non-performing asset. Since HPL started commercial production only last year, most banks and financial institutions have given them time till September 30,” HPL sources said.

Most banks and FIs will have to show HPL as a non-performing asset in their books when they do their half-yearly provisioning. “So we have some time in our hand,” sources added.

But the banks and FIs are not yet clear whether HPL will be able to bring in a funds and put an end to its financial woes.

“The impasse regarding the debt restructuring of HPL is still on. Gail’s decision to join the company is a welcome step. But it will not put an end to the financial problem of the company. It needs equity infusion to the tune of Rs 1,000 crore. Even if the banks and FIs convert some loans into equity the need for fresh equity infusion will still remain,” an FI source said.

   

 
 
REVIEW MEET ON BENGAL POWER REFORMS TODAY 
 
 
BY SUTANUKA GHOSAL
 
Calcutta, July 26: 
Union power secretary R. V. Shahi will review the power sector reforms undertaken by the Bengal government and propose steps to further expedite the reform process.

Shahi, who will be visiting the state on Saturday, will discuss a range of issues including the status of power sector reforms, the capacity addition programme under the Tenth Plan and financial and operational performance of the state in the light of the reforms. Other issues likely to be taken up include Bengal’s five-year business plan that focuses on reducing financial losses, turnaround time, break-even and profitability. Certain other points on the agenda include the roadmap for adoption of technology, reduction in aggregate technical and commercial losses and outstandings with the central public sector utilities.

The West Bengal State Electricity Board (WBSEB) will also sign a memorandum of agreement (MoA) with the Union power ministry tomorrow for achieving fixed targets in power sector reforms. The signing of the MoA will help WBSEB get funds under the Accelerated Power Development Reform Programme (APDRP).

WBSEB has already prepared a report card on power sector reforms which will be presented before the Union power secretary tomorrow. The report says that between 15 July (when the Act on power theft became effective) and today, WBSEB has conducted 1,978 raids, lodged around 332 FIRs and 82 persons have been arrested.

WBSEB had earlier signed a memorandum of understanding with the ministry of power, which spelt out various reform milestones, including reduction of transmission and distribution losses to 20 per cent by 2005.

WBSEB chairman G. D. Gautama said, “We are doing our best to bring down the T&D losses. We will intensify raids against pilferage of power for all categories of consumers.”

He said the Bengal government and WBSEB have already signed a tripartite agreement for liquidation of outstanding dues to the tune of Rs 1,750 crore payable to the CPSUs. Shahi will be informed about this development. The state government will inform the power secretary about the recent developments in capacity addition, including the planned visit of a five-member fact finding mission from JBIC to Bakreswar Thermal Power Plant on July 31, where unit IV and V (210 MW each) will be set up at a total cost of Rs 1,520 crore. JBIC will be funding 85 per cent of the project cost.

   

 
 
FOREIGN EXCHANGE, BULLION, STOCK INDICES 
 
 
 
 

Foreign Exchange

US $1	Rs. 48.68	HK $1	Rs.  6.15*
UK £1	Rs. 76.82	SW Fr 1	Rs. 33.15*
Euro	Rs. 48.76	Sing $1	Rs. 27.40*
Yen 100	Rs. 41.50	Aus $1	Rs. 25.95*
*SBI TC buying rates; others are forex market closing rates

Bullion

Calcutta			Bombay

Gold Std (10gm)	Rs. 5245	Gold Std (10 gm)Rs. 5140
Gold 22 carat	Rs. 4955	Gold 22 carat	   NA
Silver bar (Kg)	Rs. 8225	Silver (Kg)	Rs. 8255
Silver portion	Rs. 8325	Silver portion	   NA

Stock Indices

Sensex		3024.35		-70.61
BSE-100		1534.04		-41.77
S&P CNX Nifty	 973.50		-28.05
Calcutta	 111.83		- 2.57
Skindia GDR	   NA		   —
   
 

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