IDBI to look into Hytaisun sickness
NEW DELHI, June 20 — IDBI will scan the accounts of Hytaisun Magnetics Limited to verify the company’s claim for sickness and submit a report to the BIFR.

US-64 scheme revives hopes of dividend
MUMBAI, June 20 — The rise in the net asset value of US-64, Unit Trust of India’s flagship scheme to Rs 13.85 has raised hopes of the trust declaring reasonable dividends for the year 1998-99.

How banks should not deal with SSI sickness
BANK credit to SSI units is erratic in more than one sense. If it is inadequate and untimely on the one hand, it is made costlier through arbitrary means.

Inflation declines to two-year low
NEW DELHI, June 20 — The annual rate of inflation declined to a 87-week low of 3.53 per cent for the week ended June 5, due to a fall in prices of primary food articles, especially fruits.

Plan to increase PDS wheat allocation

NEW DELHI, June 20 (PTI) — The Food Ministry has mooted a proposal for consideration of the Union Cabinet to hike wheat allocation for the poor by 50 per cent, which will entail an additional subsidy burden of Rs 2000 crore in 1999-2000.

The new scheme, proposed barely months before the country goes to the Lok Sabha polls, envisages enhanced wheat allocation under the public distribution system (PDS) for those below the poverty line (BPL).

Under the proposal, BPL families will receive 50 per cent of more at 15 kg per month, up from the current level of 10 kg.

“The Ministry has estimated the subsidy dole-out through the higher grain allocation of about 36 lakh tonnes at Rs 2000 crore and a Cabinet note has already been prepared,” Food Ministry officials told PTI.

The officials said the enhanced allocation will be a one-time exception as it has been devised as a means to dispose of the excess wheat stocks with the Food Corporation of India (FCI).

The Food Ministry proposal comes in the wake of a bumper wheat procurement of more than 14 million tonnes by the FCI and other State Government agencies during the current rabi season taking the mandatory wheat stocks to over 22 million tonnes against the buffer stock norms of 40 lakh tonnes. The officials expressed optimism that the proposal will be cleared by the Cabinet soon.

Under the targeted public distribution system (TDPS), launched in June 1997, 10 kg of foodgrain are issued to all families below the poverty line.

While the Central Government fixes an issue price, State Governments are free to finalise the end retail prices of the foodgrains supplied through the PDS except in the case of foodgrains sold to the BPL families.

The offtake of the wheat and rice under the PDS is estimated to be between 16 to 20 million tonnes annually.

The public distribution system covers 16.5 crore people of which six crore are below the poverty line category.

The government sells wheat to the poor at Rs 2.50 a kg as against the economic cost of about Rs 8.08 per kg and to those above the poverty line category at Rs 6.50.

In the case of rice the economic cost is worked out to Rs 10.76 as against the price of Rs 4.52 per kg for BPL and Rs 9.05 for APL in the PDS.

The government estimated the subsidy allocation for food at Rs 8,200 crore in 1999-2000 against last year’s revised estimate of Rs 8,700 crore.

A major portion of the food subsidy is used for purchase of foodgrain by the FCI for supply through PDS at procurement prices fixed by the government from time to time. The government reimburses to the FCI the difference between economic cost and central issue price as the food subsidy.

To get over the excess stock of wheat in the state account, the Food Ministry had earlier allowed the FCI to sell one million tonnes of wheat to domestic roller flour millers, besides allowing exports of the same amount.

Refineries await price decontrol
By Ashok Kumar

ONE of the segments our research team has been very bullish about for the last six months is the refinery industry. With mutual funds now targeting the mopping up of sector specific funds, it comes as no surprise to us that one of the sectors in vogue is refineries. UTI, the ‘Big Daddy’ of all mutual funds, too has targeted this segment under its ongoing Umbrella Fund issue.

The refinery industry has been in the news following the decision to deregulate it. It is opined that deregulation will prove beneficial to the large sized companies, whereas the small sized companies are likely to suffer from deregulation and open market scenario. The three large players, Indian Oil Corporation (IOC), Hindustan Petroleum Corporation Ltd (HPCL) and Bharat Petroleum Corporation Ltd (BPCL) stand to gain the most.

The domestic oil sector has hitherto been almost totally regulated by the Controlling Ministry of Petroleum and Natural Gas. The control of this authority on the sector extended to various aspects like fixation of market price, planning and recommendation of crude/product imports, fixation of product and product mix, fixation of retention prices to be paid to the players for their refining products, fixation of profit margins, etc.

The control has had its effect on the players in the industry. This is evident from the fact that the international trend of oil companies having interest in exploration, production, refining and marketing is not prevalent in India. The players in India are engaged in only one or two of these activities. However, the scenario is changing following the announcement of decontrol. The downstream companies could venture into activities of exploration and production and subsequently the upstream players could make a foray into refining and marketing.

The industry is now accelerating the decontrol process. The price hike and the market determined pricing are steps taken by the government to deregulate the sector. The hike in price has more or less put domestic prices in tune with those globally. The other issues to be tackled while moving towards decontrol are the duties and taxes aspect. Thus, revenue losses and revenue sharing concepts must also be taken into account. The government is however circumspect about tampering with the subsidy on kerosene. However, at present, this does not, at least as yet, seem to be a cause for concern as the surplus from petrol should negate the outflow to some extent.

As per schedule, the total decontrol is expected to be completed within the next four to five years. It will be interesting to see at what point of time the government will move away from the administered price mechanism (APM). The post-decontrol period will result in the companies getting full proceeds from their products, whereas previously they gained fixed returns under APM. Thus, the players will witness wide fluctuations in profits after decontrol. While it is undoubtedly, the three large players, who are likely to benefit the most from deregulation, it will be interesting to see how the smaller players perform after decontrol.

IDBI to look into Hytaisun sickness

NEW DELHI, June 20 (UNI) — IDBI will scan the accounts of Hytaisun Magnetics Limited to verify the company’s claim for sickness and submit a report to the BIFR.

The BIFR, in a hearing recently to ascertain whether the company has actually become sick, directed the OA to specifically report within a month as to whether the networth of the company had been fully eroded by the accumulated losses as on March 31, 1997, and also check whether the balance sheet as on the same date presented a fair and true picture of the company’s accounts.

On a review of form A submitted by the company, the Bench noted that its networth of Rs 22.923 crore consisting of paid-up capital of Rs 15.59 crore and free reserves of Rs 7.34 crore had been wiped out by accumulated losses of Rs 32.88 crore as on March 31, 1997.

Incorporated in 1988, Hytaisun Magnetics commenced production in 1993 after an investment of Rs 45.79 crore in plant and machinery. The unit has been closed since January 1998.

Madurai cements: The BIFR has drafted a revival plan for the sick Madurai Cements Limited (MCL) envisaging repair of equipment and overhauling the plant before restarting the unit.

The Rs 40 lakh scheme for the company engaged in the manufacture of ordinary land cement at Manamadurai (Tamil Nadu) comprises repair and overhauling expenditure to the tune of Rs 15 lakh factory salary of Rs 2.9 lakh and EB dues of Rs 2.5 lakh. Other major components of the draft scheme include miscellaneous expenditure of Rs 9 lakh and provision of contingencies of Rs 10.6 lakh.

The cost of the scheme is proposed to be financed by way of interest free unsecured loan from the promoters (Rs 30.7 lakh) and cash at hand of Rs 9.3 lakh.

Bill Gates is still richest in world

NEW YORK, June 20 (AFP) — The rich are getting richer, but Microsoft chief Bill Gates is still the richest person in the world with a fortune valued at $ 90 billion, according to the US magazine Forbes Global.

But the combined wealth of the world’s top 200 billionaires is worth more than $ 1trillion, more than double what they were worth a decade ago, the magazine says in its July 5 issue.

As of April 30, 1999 — Forbes’ cut-off date for the list, the seven richest persons in the world were Americans, followed by Saudi prince Alwaleed bin Talal ($ 15 billion) Germany’s Albrecht family ($ 13.6 billion); and Hong Kong promoter Li Ka-Shing ($ 12.7 billion).

Trailing behind Gates were Americans Warren Buffett ($ 36 billion); Paul Allen ($ 30 billion); Steve Ballmer ($ 19.5 billion); Philip Anschutz ($ 16.5 billion); Michael Dell ($ 16.5 billion); and S. Robson Walton ($ 15.8 billion).

Forbes also listed billionaires who either inherited their money or who are living off their investments.

Among the richest of these billionaires are the Swiss families Oeri, Hoffman and Sacher ($ 17 billion); Liliane Betten Ourt of France ($ 13.9 billion); the Haniel family of Germany ($ 12.4 billion); and Curt Englehorn and his family, who are American but live in Bermuda ($ 12 billion).

US-64 scheme revives hopes of dividend

MUMBAI, June 20 (PTI) — The rise in the net asset value (NAV) of US-64, Unit Trust of India’s (UTI) flagship scheme to Rs 13.85 has raised hopes of the trust declaring reasonable dividends for the year 1998-99.

While officially UTI Executives were unwilling to commit themselves to any specific figure, sources said that gradual rise in NAV has come as a definite relief for the institution as now it would be able to offer a “proper” re-purchase price to its investors.

In November last year the scheme had repurchased units at Rs 14.40 while the sale price was at Rs 14.70.

The scheme had a NAV of slightly more than Rs 9.50 at the end of June 1998, in May this year, the NAV rose to Rs 11.05, with the fund managers indulging in judicious portfolio turnover and shoring up its debt portfolio.

In less than a month, the NAV of the scheme was managed to cross Rs 13 and according to market sources, before UTI’s year ending on June 30, 1999 the NAV might just come up to Rs 14 per unit.

The Deepak Parekh Committee report on US-64 had warned that the trust might not be able to able to “pay a reasonable levels”.

However, the recent upsurge in the equities market with the stock market sensitive index breaching the 4000-mark had helped in appreciation of the scheme’s investment portfolio, sources said.

How banks should not deal with SSI sickness
By P.D. Sharma

BANK credit to SSI units is erratic in more than one sense. If it is inadequate and untimely on the one hand, it is made costlier through arbitrary means. Sickness in this sector is becoming widespread. Even in dealing with sickness, banks’ attitude is self-defeating, causing losses to them.

Consultancy company Mckinsey’s partner has estimated that the ratio of NPAs to total loans was 16% in 1998 but as per estimates based on international accounting norms this ratio is 20-21%. It has further revealed that public sector banks are over staffed to the extent of 30-35% and it is one of the reasons for making them sick. So weak or sick banks can only make borrowers sick. Sickness in the SSI sector may be gauged from the fact that even the SBI had to write off Rs 666.80 crore in 1997-98 against Rs 293.67 in 1996-97. The total debts written off by 27 PSBs in 1997-98 was Rs 2800 crore.

Banks apply almost the same financial risk rating to SSI units as to large units. Economy of scale in both cases is widely different and is not comparable. Current ratio of 1.33 attracts full marks and score gradually decreases to 1.0 when score is zero. The Naik Committee has made this ratio irrelevant and intends to lend SSI units on the basis of turn over. Banks are flouting the norms of this committee. For rating the optimum current ratio can be 1.25.

Total outside loan and tangible networth norms are also arbitrary and chosen to hurt this vulnerable sector. Some banks count family unsecured loans as part of equity while others do not do so. SBI, supposedly the champion of the SSI sector, does not count this as capital. This reduces the score and interest rate is higher.

The parameter based on profit to determine interest is most undesirable. Profit margins in the SSI sector are very thin and vary according to market conditions. Ratio of PBDIT/Interest is kept too high for maximum score. Even the bottom seems high. This parameter should be eliminated. Similarly ratio of profit after tax to sales is too high. This is a deliberate attempt to increase the interest rates for the SSI sector. Accepted return on capital at 20% is too high. Even the bottom of 10% is unachievable.

Banks differ on the modes of commuting profit. Interest on the capital of the partners and the salaries to them are not counted in the profit. This is quite illogical. In actual terms these amounts are not withdrawn but are segregated for income tax purpose.

In view of rising sickness, policies to deal with it should be such as to cause minimum loss to the bank. Banks usually run to DRT simply to transfer their problem without watching the bank interest. After obtaining decrees from DRT, banks have to auction the mortgaged assets. In most of the cases the auction fetches low amounts which have no relevance to the realisable amounts. If on the other hand, the sale is done through mutual co-operation between the bank and the borrower, much higher amounts can be realised.

Some banks have even suggested that they should be allowed to evolve an amnesty scheme on the lines of the Kar Vivad Scheme. The Government has directed banks to encourage bank-specific settlement advisory committees (SACs). The scope of these committees has been kept very narrow and will not serve any purpose.

The Government and banks have infact no pains when a single large scale sick unit drains away several hundred crores. SAIL has sought waiver of its loan of Rs 4500 crore from the Steel Development Fund and the Government is considering this actively. If a small steel unit drains away Rs 1 or 2 crore, it is subjected to all sorts of legal actions. This can hardly be termed as fair play in a democratic country.

A number of studies have clearly established that the major cause for large scale incidence of sickness in the SSI sector is the unavailability of adequate and timely working capital finance from the banks.

The RBI and the SBI have evolved a novel idea which intends to tie up with top corporate clients of small and medium scale units for recommending loans to them. This is good but will serve only a limited purpose.

Petro Fund dark horse?

Issue: UTI Growth Sectors Fund Opens: 27.5.99, Closes: 26.6.99

UTI has chosen to swim with the tide and has forayed into the market with an umbrella fund titled UTI Growth Sectors Fund. On offer for investors under this “umbrella” are five options, namely the Brand Value Fund, the Pharma and Healthcare Fund, the Software Fund, the Petro Fund and the Services Sector Fund. Notably, all these funds are open-ended with daily sale and repurchase options.

To start with, each of these funds would invest as much as 90 per cent of their respective corpus in the equities of companies engaged in the specified sectors. Anyone worth his salt at the bourses would know that pharma, software and FMCG are there of the most potent sectors going, and also that there are already a few sector specific funds focussing on these sectors. To that extent, this offering seems to have come a little late in the day and it now really boils down to a matter of timing. These sector funds will distribute dividend annually subject to its being able to generate a net income of at least Re 1 per unit during the year, and in case the net income is lesser, the fund will not declare any dividend during that year. Instead, the earned income will be carried forward and clubbed with the subsequent year’s income. The initial offering for these funds which opened on May 27, 1999 will close on June 28, 1999. Investors entering the fund during this period would be eligible for the units without any load, as also while existing it.

While this entry load would be zero even thereafter, there would be an exit load of 3 per cent for those who come in later. There is also a switchover facility within the different sector funds, albeit at the NAV rate. While the minimum investible sum for each fund is Rs 5000 to start with, subsequent investments have to be made in multiples of Rs 1000. What is really notewothy is the fact that while the NAV, repurchase and resale would be done on a daily basis, UTI will use the historic pricing policy, as opposed to the more commonly used prospective pricing policy, to arrive at the NAV. Historic pricing here means price based on the previous day’s NAV, whereas prospective pricing is based on the following day’s NAV.

While the advantage here is that the historic system enables investors to know the exact price at which they are entering and existing the fund, it has an inbuilt disadvantage too given that it remains vulnerable to manipulation by operators especially in a volatile market. Another major development here is that UTI will disclose the portfolio of each of the sector funds on a quarterly basis.

The innovative features here are the Brand Value Fund and the Services Sector Fund. The Brand Value Fund will be investing in companies with a strong brand-equity. Interestingly, this fund would encompass not only companies from the FMCG sector but others with strong brand names like Pidilite Industries. The Services Sector Fund’s purview would extend to companies engaged in sectors like infotech, entertainment, banking, hotels and telecom. While the former would be treading on safer ground, the latter would to some extent be testing hitherto turbulent waters.

While the risk taken could result in lower returns, it must be remembered that the markets often reward contrarian views. To that extent, those with some penchant for a risk-reward tradeoff could take a closer look at the Services Sector Fund. The dark horse here could well turn out to be the Petro Fund, notwithstanding the fact that the share prices of the majors from this segment and already on the rebound.

Issue: SQL Star International

Opens: 18.6.99 Closes: 24.6.99

Issue size: Rs 14.30 crores

Offer price: Rs 55 per share

The Prime objective of this issue is to raise funds to part-finance the expansion of its software and consulting division as also its education division. The self-estimated project cost stands at Rs 25.26 crore which is proposed to be met through issue proceeds (Rs 14.30 crore), promoters funds (Rs 1.93 crore), internal accruals (Rs 7.03 crore) and a term loan of Rs 2 crore from the State Bank of India.

Perhaps, the estimated project cost would have enjoyed enhanced credibility had it been appraised even by the SBI. Although the financial track-record of the company has been satisfactory, it is nothing worth writing home about and it is in this light that one feels the need to take SQL’s self-estimated profitability projections with a pinch of salt.

Investors are being asked to park their funds in a company engaged in a segment that is slowly but surely getting crowded and although there is scope for growth therein, it is unlikely to be of the exponential kind witnessed hitherto.

Although this issue cannot be written off, its pricing definitely appears to be on the higher side and one wonders whether investors would invest therein or simply look around for better pickings from the same segment in the secondary market.

Inflation declines to two-year low

NEW DELHI, June 20 (PTI) — The annual rate of inflation declined to a 87-week low of 3.53 per cent for the week ended June 5, due to a fall in prices of primary food articles, especially fruits.

This is the lowest inflation since September 27, 1997, when it touched 3.47 per cent.

During the week, the annual inflation based on wholesale price index fell by 0.33 percentage points to 3.53 per cent (provisional) from 3.86 per cent (P) in the previous week. The inflation rate was way higher at 7.04 per cent a year ago.

Inflation has been falling since the beginning of the current financial year despite an increase in the overall index.

While the rate of increase in prices shed over one percentage point since April 3, 1999, the index for all commodities (base: 1981-82=100) rose from 354.7 to 357.5 during the period.

by J.C. Anand
Bull phase may not last long despite recovery

During the last fortnight, the Sensitive Index touched 4125.3 points (on June 17, the highest so far in 1999, though it closed at 4109.9 points last week. In all the Index had gained 94.1 points during the fortnight. There is a general impression that the market has entered the bull phase. The market continues to surge forward despite the Kargil war and the economic burden it as placing on the economy.

There is some evidence that the economy is reviving. The revenue collections are up by 21.3 per cent in the first two months of the current fiscal year. Excise and custom collections have increased by 27.8 per cent. Again, the Central Statistical Organisation data reveal that the industrial growth in April was 6.8 per cent, and this is largely due to the upsurge in the manufacturing sector.

There are also indications that cement, automobile ancillaries, synthetic yarns, consumer durables are doing better than in the corresponding period last year. Even textiles and steel are showing modest improvement.

The final report of the CII’s 51st business outlook survey reveals an improvement in the overall business sentiment. The survey is based on the responses of 400 member companies. There is also a larger inflow of foreign capital in terms of FII investments as well as FDI proposals. A reliable report indicates that the Cabinet committee on foreign investments has cleared FDI proposals for Rs 7,000 crore, and it is expected that at least 30 per cent of these proposals would take a practical shape.

A more substantial and durable factor is the move of the American Congress to authorise the President to lift some economic sanctions imposed on India and Pakistan. The US Senate has voted to suspend economic sanctions on India and Pakistan for five years but keep a ban on military and nuclear technology sales. The House of Representatives too has passed the necessary legislation in this direction. One major effect of suspension of economic sanctions against India would be the World Bank approval for many infrastructure projects which have been fully negotiated but are pending final approval. The approval was being withheld due to the opposition of the USA which has substantial strength in the World Bank to defeat any proposal.

The World Bank loans will revive industrial production in a big way, and those companies like Larsen & Toubro and ABB will be the gainers. There will be higher demand for segment and steel as well as machinery. But the actual gains would come more in the year 2000 than in 1999. A good foundation for industrial revival is being laid down but the revival itself may come later.

The major question is whether the present bullish sentiment and phase will sustain itself in the coming months. In the present frenzy, the traders are pushing the market regardless of what may come in the coming months. The diplomatic support from the USA and the other western powers for India in the Kargil war has no doubt isolated and cornered Pakistan, but the Kargil war is subjecting the Indian economy to heavy burdens.

August and September are bound to divert public opinion and attention away from the bullish phase to the election issues. It is quite on the cards that no single political party or a group of party alliance is likely to win absolute majority in the Lok Sabha. The Sonia Congress may be pushed down to the third position. A coalition government, composed of many disparate political parties, would not be able to deal with problems of the economy and national reconstruction even in the manner in which the present care-taker government is acting.

The present bull phase, as it appears to me, is a transition phase and is not likely to sustain itself even in mid-August. There is a need for caution on the part of long-term investors. No fresh investments should be made at present and some profit-booking may be done in the stock which appear to be overvalued. The software and pharma shares are already subdued. But the multinational pharma scrips have a great future and these should be retained on along-term basis. Even purchases may be made in August-September in these scrips if the market prices get attractive. The same applies to scrips which would gain in case World Bank loans are finally approved and cleared. Steel and automobile shares should be left alone at least for the time till there are distinct signs of real revival in these sectors.

The first quarter results are now likely to be declared in September. These results would provide substantial evidence for the state of health of the industry. Wait and watch for these reports.

by K.R. Wadhwaney
Smaller aircraft, smaller routes

Indian Airlines does need smaller aircraft to widen its operation. The routes in North-East may not be as important as Mumbai or Chennai or Calcutta, but they are vital. They need to be catered to regardless of constraints, most of which are man-made.

There is an urgent need to fly small 50 or 60 seaters on several uncared for Routes. But should a particular brand of aircraft be thrust upon the airline through a totally government-sponsored board?

Minister for Civil Aviation Ananth Kumar’s knowledge about ever-changing scenario of aircraft is limited. He and his advisers should display prudence in opting for ATR-52 or any aircraft.

Indian Airlines had many seasoned and experienced engineers, pilots and technicians who have handled and flown on several types of aircraft. They are aware which is the best suited aircraft for Indian routes and climate. Marketing experts can throw light as to which aircraft should be operated on routes like, on Gorakhpur, Gwalior, Jabalpur and the North-East region.

Losses sustained by the airline is one thing but reliability of the aircraft is another. Any decision taken in haste will lead to regret it subsequently. So it is advisable to seek opinion of experts.

There are countries which are thriving entirely on the promotion of aviation and tourism. Sadly, priority in this country on these vital industries is very low. As a result the tourism and aviation is lagging behind. This is a cause of concern.

The Ministry should exercise its own decision instead of competing with private operators who, the existing complex situation, have nothing to lose and everything to gain.

Jet Airways: Subject to the government approval Jet Airways will acquire 10 next generation B-737 aircraft, which will be put into operation between 2001 and 2003.

Jet Airways will also replace two of the leased aircraft with B-737-700s in December, 2000. The airways has several other promotional schemes.

Starting on domestic network in May, 1993, Jet Airways operates a fleet of 25 B-737 aircraft.

With the conclusion of the December, 1966, Purchase Agreement, Jet Airways became the first private airline in India to purchase its own fleet.

Corporatisation: Uneasy lies the head that wears the crown. This is the state of mind of the Minister for Civil Aviation. He appears to be determined to take decisions before the new government is formed in September-October. He is reportedly pressing the Cabinet to take a decision pertaining to corporatisation of five airports. They are in Delhi, Mumbai, Chennai, Calcutta and Bangalore.

Airports Authority of India (AAI) officials are reportedly disturbed at the proposal. The Cabinet can take decision in this regard only after the AAI Act is suitably amended.

PNB fund
NEW DELHI, June 20 (PTI) — PNB Mutual Fund has decided to make its Equity Growth Fund-1996 (EGF-96) an open-ended fund soon in order to provide liquidity to its unit holders. “EGF-96 will be made open-ended shortly and the fund will be approaching SEBI for its approval,” PNB Mutual Fund Managing Director, Ranjan Dhawan told PTI.

NSE terminals
NEW DELHI, June 20 (PTI) — As part of its global strategy, the National Stock Exchange (NSE) will soon set up trading terminals outside the country and start trading through the Internet. A large number of NSE trading members have shown interest in setting up trading terminals outside the country, NSE Deputy Managing Director Ravi Narain told PTI.

NBFCs
MUMBAI, June 20 (UNI) — The RBI yesterday rejected the applications for registration submitted by Shimla-based Himachal Housing and Fiscal Services Ltd and Ludhiana-based Bachan Leasing and Auto Finance Limited.