Smiles and sniffles for India Inc
Bulls and bears trapped in Tiger�s den
More funds to flow to states
User charges for water
Hero group takes the infotech plunge
Air-India to appoint consultants for selloff
Karnataka throws open its mines

July 27 
India Inc is in fine fettle. That is the long story cut short. On a day when 200 companies raced against a July 31 deadline to unveil first-quarter numbers, there were the familiar leaders, a few surprise losers and some who had nothing but a consolation: they were less worse off than before.

As the numbers trickled in through the day, it was clear that the final outcome was a mixed bag. Companies like ITC started the year on a strong note with a 25.11 per cent increase in profit. Some, like Wipro, delivered a sizzler, while SAIL took heart from the fact that it had trimmed its losses.

Others, Hindustan Lever Chemicals for instance, surprised by reporting its first-ever loss. State Bank remained predictably consistent, but VSNL rewarded shareholders with a 1:1 bonus issue on the back of a modest profit growth.

Stock markets weren�t fretting either. The sensex soared almost 90 points to close at 4,281.13 after days of bruising roller-coaster sessions, and Dalal Street mavens said the fresh crop of results would give a rudderless market some sense of direction.

Clearly, ITC was the biggest draw. The company which keeps bourses on their toes redeemed the trust of its investors when its chairman Y C Deveshwar said his company�s net profit of Rs 242 crore compared with Rs 193 crore a year ago was �satisfactory�.

The gains were driven by a robust 13.25 growth in topline at Rs 1,005.99 crore as against Rs 888.27 crore in the same period last year. One of the country�s best-known conglomerates, ITC said it was in good shape because it sold more cigarettes, its hotels reported better occupancy rates and ITC Bhadrachalam, its paper-boards subsidiary, came out of its lean patch. Its retail foray early this month was another big boost.

Wipro�s was the most promising story though. The Bangalore-based software star, that has given its boss a fortune to match the world�s richest, saw its after-tax profit zoom to Rs 107.7 crore. At the bottom of that splendid performance lay a 47 per cent increase in sales and other income to Rs 622.1 crore.

State Bank of India�s profits were up 33 per cent at Rs 461.70 crore compared with Rs 346.85 crore in the same period of the previous year. The bank said it had made a provision of Rs 625.06 crore for the first quarter, up from Rs 549.41 crore at the same time last year, to hedge against sticky loans. This was done against the backdrop of an increase in non-performing assets to Rs 350 crore (Rs 284 crore). Unlike in the previous year when the arrears of salary revision was provided after arriving at the operating profit, SBI this time, provided for revision before arriving at the operating profit. Payments to and provisions for employees stood at Rs 1,250.64 crore (Rs 1,051.86 crore).

During the year, while interest earned from operations rose to Rs 5,923.05 crore against Rs 5,082.23 crore in the previous year, other income was put at Rs 804.08 crore, down from Rs 829.33 crore.

Average advances of the bank during this period were Rs 93,519 crore against Rs 77,422 crore, showing a rise of 21 per cent. However, the increase in interest income on advances was 11.61 per cent, on account of reduction in the average yield on advances due to a lower PLR.

On the other hand, average deposits rose by 16 per cent to Rs 1,69,462 crore from Rs 1,45,515 crore with the cost of deposits witnessing a reduction from 7.98 per cent to 7.52 per cent in this quarter. SBI said its deposits during the period increased 15.58 per cent at Rs 1,79,839 crore over June 1999. The advances during this period was higher by 25 per cent at Rs 101429 crore.

VSNL reported an 8 per cent rise in its profit at Rs 382.9 crore. The company�s phone traffic increased 16.23 per cent, and the number of subscribers to its internet access services zoomed 83 per cent. Its revenues swelled 33.95 per cent to Rs 72.2 crore.

Not all had it good. Hind Lever Chemicals suffered its maiden loss of Rs 19.8 crore in what was its second quarter as against a profit of Rs 8.2 crore in the first. The company blamed ad-hoc subsidies and delays in subsidy payments for its woes. However, the first quarter profit ensured that for the six-month period, it had a net profit of Rs 11.6 crore, even though this was lower than Rs 17.9 crore for the first two quarters of 1999.

SAIL, the lumbering public sector steel-maker steeped in the red, said it was crawling out of its financial mess. It announced a 60 per cent decline in its first-quarter loss to Rs 231 crore from Rs 626 crore a year ago. Turnover was marginally higher at Rs 3,554 crore from Rs 3,376 crore, largely because of a 16 per cent growth in price realisations. �The measures taken by us are reflected in our Q1 results. The numbers underscore the need for restructuring,� chairman Arvind Pande said.    

New Delhi, July 27 
The positive fallout of the Bal Thackeray episode is the belated realisation in official circles about the dangers of excessive concentration of the financial system in Mumbai.

So far, only issues affecting the national political stability used to rock stock markets. But of late, both state and local level political developments have begun to influence them. Share prices crashed on rumours of impending arrest of Thackeray. Had there been a bandh, operations of the entire financial system would have come to a grinding halt.

Official circles feel that the finance ministry should now take the initiative in dispersing the financial market not only to other metropolitan cities but also to smaller towns such as Hyderabad, Gwalior and Trivandrum. With the help of information technology, these centres can function effectively through networking.

The Thackeray episode, as such, may not have been the cause for the crash. If the markets swooned on rumours of his arrest, it recovered the day the case against him was dismissed. However, it went down again the following day. This shows that players were using the Thackeray episode as a ruse to pull their money out of the market.

Foreign financial institutions, obviously, sensed that the rupee was going to depreciate. India�s foreign exchange market being notoriously thin, the departure of even a single FII can influence the exchange rate.

The foreign funds have been net sellers in recent weeks. There is nothing unusual about their exit, and profit booking is part of stock market operations. The government should worry only if the net outflows in a year exceeds inflows.

Official circles acknowledge that the current exchange rate of Rs 45 per dollar was reasonable, and that there was no need to panic. The market did not have the excess liquidity to warrant the drastic steps announced by the Reserve Bank. Financial circles have not understood the precise calculation behind these steps. Jalan has, in fact, gone back on his own commitment to reduce the cash reserve ratio. Sources speculate that the central bank had fears that the excess liquidity of Rs 3,000 crore generated by treasury bill redemptions will weaken the rupee.    

New Delhi, July 27 
The government today accepted the 11th finance commission�s recommendation to transfer up to 37.5 per cent of Centre�s revenue to the states.

This includes compulsory devolution of 28 per cent of central taxes to the states and an extra 1.5 per cent of the net tax earnings among those states which do not levy sales tax on sugar, tobacco or textiles.

For states, this is good news, as it means more money will flow compared with the current level of 29 per cent of gross revenue from central taxes.

Finance minister Yashwant Sinha placed the commission�s report in the Lok Sabha today along with an action taken report. Key proposals include a debt relief scheme for states linked to setting their fiscal houses in order, conditional grant of Rs 10,000 crore for municipal and Panchayat bodies to be spent during 2000-2005 and levy of a special surcharge to pay for national calamity relief. These proposals have been accepted.

The report, which is effective from April 1, 2000 and runs through till March 2005, aims at restructuring the finances of both the Centre and states to bring down their combined debt-GDP ratio by 10 per cent to 55 per cent and their revenue deficit from 6.8 per cent to 1 per cent.

The commission has worked out a formula for sharing central tax transfers among states, based on a weighted formula which takes population, income, area, infrastructure development, tax effort and fiscal discipline into account.

This gives Uttar Pradesh the lion�s share of 19.8 per cent and tiny Sikkim just 0.2 per cent. Among other states, West Bengal has been allocated 8.1 per cent, Bihar 14.6 per cent, Andhra 7.7 per cent, Assam 3.2 per cent, Madhya Pradesh 8.8 per cent, Maharashtra 4.6 per cent, Karnataka 4.9 per cent and Orissa 5 per cent.

To help the debt-ridden state governments, the commission has decided to broaden the existing debt relief scheme. But it linked disbursements to bringing down the revenue deficit of these states.

Finance ministry officials clarified that such states will have to agree to an existing system of memorandum of understandings which calls upon them to cap wage bills, sell off loss making PSUs, hike service charges and improve tax collections. States facing special problems such as insurgency, naxal menace have also been provided with special funding.

The commission has sought to distribute some Rs 10,000 crore among municipal bodies and Panchayats in five years, with 80 per cent of the amount going to the Panchayats.

However these disbursements will be conditional to the local bodies managing to raise matching resources. If the elected Panchayats or municipal bodies do not exist in some states, the funds meant for these states will be held back. These bodies will also have to maintain proper accounts of all expenditures under the scheme.

The commission has recommended discontinuation of the existing national fund for calamity relief. Instead, it has sought levying of a special surcharge on Central taxes for a limited period to pay for a new National Calamity Contingency Fund to be kicked off with an initial corpus of Rs 500 crore.    

New Delhi, July 27 
The 11th Finance Commission today asked the states to raise their consolidated funds through tax reforms including imposition of user charges on water and other civic amenities, tax income from land and farm, professions and cess on state sales tax.

The commission said the cost and maintenance of civic services like education, health and drinking water should be met by raising the tax revenue and user charges and by devolution of funds from the states.    

New Delhi, July 27 
The Hero group today forayed into the information technology sector through Hero Corporate Services Limited. The infotech venture has an initial investment of Rs 30 crore. The corpus will be increased to Rs150 crore by 2002.

Hero Corporate Services Limited, which has investments from various group companies, has set up two separate divisions, Enterprise Plus Solutions and Customer Plus Solutions. The company will offer software solutions and a range of customer relationship management services. As part of the investment initiative, the Hero group has acquired a stake of 30 per cent with an investment of about Rs.12.5 crore in US based FirstRing Incorporated. FirstRing specialises in customer response centre including call centres.

Call Centre is a place where a subscriber can make a toll-free call. The company managing the call centre receives request, complaint and suggestion on behalf of various client companies. Their job is to forward the messages to their clients and their replies to the subscribers.

Announcing the launch of Hero Group�s entry into IT, Sunil Munjal, managing director, Hero Corporate Services Limited said, �We term our call centres as customer response centres. About 75 per cent of the Rs.150 crore investment in the company over the next two years would go into call centres. We will concentrate in getting customers from US, Canada, Europe and Australia. These centres would also be open for Indian companies.�

The first call centre from the company will be set up in Bangalore on Friday. Three more centres are in the offing in Calcutta, Chennai and Delhi.

Enterprise solutions division of the Hero Corp will focus on electronic business and web enabled software development service. For this, it will set up a service centre in Gurgaon. The division will have in its repertoire customer relationship management (CRM) and supply chain management (SCM) consultancy and implementation services for customers in US, Europe, Australia and Japan. The company will also provide enterprise resource planning services.

The customer plus solutions division will offer a complete range of CRM services, voice and e-mail based responses, electronic chat based technical and other support , data warehousing and data mining services.

The company aims to enter the insurance sector soon. It has already identified a joint venture partner. B. M. Lall Munjal, chairman Hero group said, �We will enter in all related areas of insurance sector and will apply first.�    

Mumbai, July 27 
Air-India will shortly appoint a slew of consultants to provide crucial inputs to help the government in their effort to divest equity. The inter-ministerial group, which met yesterday in New Delhi, has directed the national carrier to appoint legal advisors and auditors to restate its accounts under US GAAP. Its prime properties, spread across the country, are to be revalued by real estate consultants. This is in line with the time-table set which mentions that the notice inviting �expressions of interest� will be put out in leading publications on August 4.

The pace at Air-India�s headquarters has already reached a fever pitch. Nassir Doha, head of Morgan Stanley�s divestment team and an authority on aviation, will arrive next week for consultations with Air-India officials. Ms Naina Lal, head of investment banking at J M Morgan Stanley, will be assisting the team.

Air-India, after incorporation in 1953, has not revalued any of its properties. The consultants will enable the government to get a realistic valuation. Conservative estimates peg its real estate assets somewhere in the region of Rs 15,000 crore. The head-quarters in the city, alone, is worth a few hundred crore.    

Bangalore, July 27 
Karnataka has opened its mining sector to international mining giants like De Beers, Rio Tinto and Australia-India Resources to begin prospecting for precious stones and metals like diamond, platinum, gold and silver.

Information Minister B.K. Chandrashekhar said, the state cabinet, after scrutinising 57 applications for reconnaissance permits, gave its nod to 11 companies, including De Beers. Each company will be permitted to do reconnaissance over 45,000 sq km area for a period of three years and later allowed to take up prospecting in a range of 10,000 sq ft.

The objectives of the new mining policy were to explore mineral wealth optimally and expeditiously by adopting modern techniques and to exploit the mineral deposits by using mechanised and scientific methods.

A number of foreign private companies had shown interest in prospecting for minerals as south India has the same type of rock formation as Australia and South Africa.    


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