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Monday,
July 1, 2002, Chandigarh, India  
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Textile
scrips up: wait for results
‘Managing time was biggest challenge’
Old economy shares move up |
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Blue Star eyes West Asia for ACs
VRS scheme
Inflation scales new high at 2.05 pc
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Textile
scrips up: wait for results THE
textile industry has been India’s main forte after Independence.
However, over the years due to the obsolence of technology and labour
issues the industry has lost its sheen. But the Government of India and certain state governments have been coming out with certain initiatives from time to time to revive the industry. For example, the Punjab Government has been thinking of putting together a package to revive the small scale industry (SSI) in Ludhiana, which has had a poor run after the break-up for the Soviet Union. Till 1985, the dominant concerns of government policies towards the textile industry centered around import substitution (rather than an export thrust), protection of existing employment in the organised sector, support of the decentralised sector and protection of the cotton farmers’ interests. In June 1985, a new textile policy based on a package of specific recommendations was announced by a high level expert committee. It accepted that the crisis in the industry were neither cyclical nor temporary but rooted in deeper structural weaknesses. It identified the main task of the textile industry was increase in production of cloth of acceptable quality at a reasonable price to meet the clothing requirements of a growing population. It was envisaged that this basic objective would be met through cost efficiencies and a free play of market forces rather than through controls and restrictions. To boost modernisation of the industry, the government announced a Rs 250 billion technology upgradation fund (TUF) in the last year’s budget. It will be valid for five years and ending in March 2004. It hopes to reimburse 5 per cent on the interest charged by DFIs (including ICICI, IFCI and IDBI) on loans given to modernise the various facilities.
Size of the industry India has a significant competitive edge with the availability of good quality raw cotton, low cost skilled labour and indigenous technology of the textile machinery. India’s export potential has been hindered by quota restrictions in the developed world. In the domestic market, the policy framework favours spinning (which is capital intensive) by large mills and weaving by SSI. In the organised sector, about 1,100 units produce the entire yarn output. The scenario is very different in the weaving segment where independent weaving and processing units account for more than 16,000 million metres of the woven fabric production. The small or cotton sector also accounts for most of the basic knitting process. Processing of knitted fabrics was till recently carried out mainly in decentralised small units with very little power-based technology. This scenario is now changing with several new large-scale processing projects being set up with the latest technology. The major players in the North Indian sector are Vardhman Spinning Mills, Vardhman Polytex and Nahar Spinning.
Vardhman Spinning Vardhman is one of the leading manufacturers of cotton/blended yarn. Its spinning units are located at Baddi (Himachal Pradesh) and Ludhiana. Vardhman has also forward integrated in weaving/dyeing on a small scales. Vardhman is a well-established player in the cotton yarn and textile market. Its plants are located in proximity to raw material sources. The company has strengthened its competitive position with forward integration into weaving and dyeing. It has achieved a growth of over 50 per cent in exports but with over dependence on one agent viz. Marubeni Japan. The company reported a 694 per cent drop in net profit to Rs 5.04 crore on 5 per cent growth sales of Rs 550.29 crore during the year ended March 2002 as
compared to the previous financial year. The earning per shares (EPS) works to 3.16. The cotton price has seen an upward trend over the last few months. However, yarn prices remain low. This has posed a formidable challenge for Vardhman Spinning Mills. The company plans to fact this challenge by technological upgradation and expansion. The company’s stock is currently trading at Rs 65.25 discounting the earning by 20 times. considering the nature of the industry the current discounting seems to be on the higher side and the investors are advised to evaluate the first-quarter results before adding the stock to their portfolio.
Vardhman
Polytex Vardhman Polytex Limited (VPL) was originally incorporated as Punjab Mohta Polytex Ltd in 1980 as a subsidiary of Mohta Industries. It was promoted as a joint sector company as Mohta Industries and Punjab State Industrial Development Corporation. The company came under the Vardhman Group after the takeover of Mohta Industries by Mahavir Spinning Mills Ltd. (MSML) in 1988. The name of the company was changed to VPL in financial year 1991 and its remained a subsidiary of MSML till 1993 after which it became a separate company. The company’s operations include cotton spinning and line manufacturing, staple fibre yarn machine combing and re-combing of all types of fibres and manufacturing of mild, high carbon and spring steel billets/ingots. VPL currently has four production units and a capacity of 86,000 spindles. VPL has facilities for cotton yarn spinning at Bathinda (Punjab) and Baddi (Himachal Pradesh) besides a worsted spinning unit at Ludhiana (Punjab). The Baddi unit, commissioned in 1997, is a 100 per cent EOU consisting of over 25,000 spindles. Last year the company reported 80 per cent drop in net profit to Rs 4.04 crore on a sales of Rs 283.61 crore which grew by a meagre 6.5 per cent. The current market price of the stock is Rs 37, discounting the earning by 10 times.
Nahar Spinning Nahar Spinning Mills Ltd. (NSML), of the Oswal Woollen Mills Group, started operations in 1983 with a woollen/worsted spinning and hosiery unit at Ludhiana. The company expanded into cotton/blended spinning and knitwear with a 50,400 spindle unit at Mandideep in Madhya Pradesh. NSML added 2160 spindles in financial year 1999 to raise the capacity of its spinning division to 66288 spindles. NSML has been increasing its thrust on exports and it was conferred with the status of ‘Golden Trading House’ in recognition of its contribution to exports. The company reported a net profit of Rs 22 crore (including other income of Rs 14 crore) on a total sales of Rs 396 crore. The current market price of the stock (Rs 84) discounts the earnings by just 6.5 times. But given the current state of the industry one should wait before investing in the company’s stock.
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‘Managing time was biggest challenge’ “At the time of our father’s death in 1990, Dr Naresh Malhotra, was Head of the ENT Department at Christian Medical College. I, the younger of two brothers, was a practicing Chartered Accountant but it was tough to carry on with our professions,” says Mr Anil Malhotra.
Initial hurdles “I was sure that I serve the people of the city as a doctor as this was what I envisioned for myself. But at the same time, the family affairs could not be ignored. So I decided to pay equal attention to my patients as well as the family-owned business. Those were hard times as I had a little knowledge of the management principles and business skills. But gradually, we learnt the job,” says Dr Naresh Malhotra and goes on to explain how they came to be rated the No 1 agency in northern India in less than three years. We were thinking of selling out our fathers business and concentrating on our original professions when Maruti advertised for a business partner to sell their vehicles in Ludhiana. This was in 1995. We approached the company and their directors decided — after a keen scrutiny — that we had the best infrastructure available, coupled with the fact that we were educated and had some experience in business.
Hardwork helped We spent a lot of time grooming the business to make it a successful venture. We decided that Anil would concentrate full time on Stan and would practise his accounting skills on the business accounts, while I would pursue serving the sick, by appointment, as I did not want to lose the opportunity of serving humanity.
Secret of success From day one, we decided to have very honest and fair dealings and practically adopted the Maruti slogan that said: “For Maruti, Customer is King” and this has paid us rich dividends. We strictly adhered to the guidelines given to us by Maruti and tried to pass on as much benefits to our customers as we could.
Major achievements Stan today has turnover of over Rs 100 crore. Three years after its inception, Stan was adjudged No 1 in customer satisfaction, sales and service in the northern region — a position Stan has maintained for the past four years. Stan is the first Maruti dealer in the region to be allowed to open a second channel showroom in Ludhiana (another showroom with the same name).
Trends in car industry The car industry is expanding rapidly and various surveys have showed that the car sales over the coming years would register a considerable growth. Several new companies are also entering the Indian market. But one of the most significant trends is the growth in the used car market. Maruti has also entered the used car segment with a scheme that it calls “True Value System”. In the USA and the UK, used car to new car sales have a ratio of 4:1 whereas in Japan this is 3:1. India is expected to touch new heights in this segment.
Future plans Stan plans to diversify into the used car segment. A new set-up is being prepared to tap this market. Besides, Stan Autos has also diversified into the two-wheeler segment with the launch of Stan Wheels, an exclusive a Hero Honda outlet with modern automated workshop. (As told to Naveen S. Garewal) |
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Old economy shares move up DURING the last fortnight, Sensex moved down by about 80 points, yet the old economy shares moved up in general. While Reliance group shares were depressed due to brain-stroke of the Dhirubhai Ambani, the Tata Group shares made some spectacular gains. Rallis India which reported a net profit of Rs 21.60 crore and declared a dividend of 100 per cent (of which 60 per cent is a special dividend for the year 2001-2002). During the last accounting year, the company was in the red. Due to sale of land and of pharmaceutical business, the extra income has contributed to its good results. But the 4th quarter results indicate a profit after tax of Rs 36.42 crore (as against Rs 4.07 crore in the corresponding period last year). This scrip was quoting around Rs 40 or so two months back and around Rs 65 or so a fortnight back. But last week, it closed at Rs 130. Tata Chemicals scrip, which was quoting around Rs 40 two months back, is now moving around Rs 59/-. Tata Finance has also moved up from Rs 25 or so to Rs 33. Tata Investment Corporation also has moved up from Rs 75 to Rs. 82. Tisco and Telco have also made significant gains in market prices. Tisco which was quoting around Rs. 103 a fortnight back, closed at around Rs 140 last week. There is also a report that Tisco is likely to raise steel prices this week. This is likely to raise market rating of Tisco during the fortnight. Surprisingly, some textile and cotton thread shares have been doing very well. Vardhman Spinning, which had a lean year and just maintained its dividend of 25 per cent, is quoting around Rs 63 or so while it was lumbering along Rs 30 or so a month back. Vardhman Poly has moved up from Rs 31 to Rs 37 after touching Rs 42. Mahavir Spinning, Nahar Group’s leading share, Nahar Spinning, have gained almost 30 per cent in market price. GTN Spinning, Patspin and Eurotex have gained almost 40-50 per cent in the market price. Speciality Chemicals shares have also done reasonable well. BASF India has reported 96 per cent rise in its net profit for the 4th quarter and a net profit of Rs 28.25 crore for the accounting year ended March 31. It has raised dividend from 40 per cent to 50 per cent this year. It was quoting around Rs 92 or so a month back but it touched Rs 113 when the market closed last week. Ciba Speciality is quoting around Rs 118 while the company’s buy-back rate is only Rs 110 per share. It has now been extended the date for buy-back and has informed the prospective sellers that they would be also entitled to 90 per cent dividend in addition to the share price of Rs 110. Clariant India is now quoting around Rs 120 pre share (as against Rs 104 a month back). It has also raised its dividend. Vanavil Dyes which had a lean year and cut down its dividend from 40 per cent to 20 per cent has, however, moved up from Rs 30 pre share to Rs 43 or so. It is likely to do much better this year. Colour-Chem has, however, declined during the last fortnight. It has been moving up on its prospects of buy-back by the company at a much higher rate. If the ‘buy-back’ comes, the share will make spectacular gains. Bajaj Auto had a weak market because of the news that one of the brothers in the management may be opting out. In general, Banks are doing very well. State Bank of India had declare good results. Karur Vysya Bank has raised its dividend to 70 per cent and its share is now quoting around Rs 500 (inclusive of bonus and rights issues). Now that the government has issued an ordinance to enable banks to recover its bad debts with less difficulty, the banking sector is likely to improve its profitability. Interestingly, in a debate in the Economic Times last week, on the subject whether “the economy recovery was in sight”, all the contributors, which included highly well-placed and informed persons, indicated that the economy was on its recovery path. Good monsoon rains which would improve rural demand, recovery in the automobile sector, good prospects of the pharma sector, a robust 5.8 per cent growth in the six infrastructure during 2002 as also positive outlook in the business sentiment seems to indicate economy recovery in the country. It appears to me that the present time is opportune for liquidating 3rd and 4th category shares. A bit of profit-taking may also be done in scrips which have gained more than 30 per cent and have unsure prospects in the near future. One factor which is inhabiting the recovery in the stock market is the absence of FIIs. Some small purchases were made by a few FII investors last week but no bulk buying has so far been done by the
FIIs. |
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Blue Star eyes West Asia for ACs LAST
week, we had commenced a discussion on the air-conditioner industry which performed exceptionally well this summer. Let us now zero in on two prominent companies engaged in that segment, Blue Star and Voltas. Mega air-conditioning projects have been Blue Star’s forte. The company derives about two-third of its revenues from the central air-conditioning segment while the rest comes from commercial and room air-conditioning. Currently, the company derives around 10 per cent of revenues from exports. It is focusing on the overseas market, especially the West Asia to shore up its revenues, At the other end of the spectrum, Blue Star has aggressive plans to enhance its share in the growing market for window and split air-conditioners, with a special focus on corporate and commercial customers. The company has ambitious plans to expand its commercial refrigeration business as well. Another significant step taken by the management has been to leverage its engineering and manufacturing expertise to generate an alternate source of revenue like the company’s collaborators sourcing some of their products from Blue Star. Given the lower cost of labour and the huge scale of operations, the company is able to offer competitive prices. Voltas, on the other hand, has placed renewed thrust on the AC business and what’s more it claims that its air-conditioners can pass an IQ test. Perhaps, we should ship a few of their air-conditioners to the White House! During the mid-90s Voltas, which was once a pioneer in the air conditioners and refrigerators segment got stonewalled with the entrance of MNCs and other local players in the market. In fact, it was in 1996-97 that for the first time in its history of 40 years Voltas reported a net loss of Rs 16.82 crore. This forced the company to sell off its non-core businesses and embark on a restructuring exercise. The company has reported a 30 per cent growth in its air-conditioners business as compared to 20 per cent growth reported by the industry. The company has itself a steep target of doubling turnover every four years and profits every three years. Now, whether that target is achieved or not, it has definitely met our share price target of a 40 per cent price increase since we last recommended it in our electronic investment newsletter titled “Lotus Stock Flash”.
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VRS scheme Q: I have sought my retirement in the month of June 2001 from my employer i.e. Central Bank of India, under CBI VRS-2001 scheme approved by Central Government. My employer paid me a compensation amount after deduction of TDS by allowing an exemption of Rs 5 lakh. It has come to my knowledge that Income-tax Department has issued a notification that the compensation paid under certain acts/contract of services and/or otherwise under any scheme duly approved by Central Government is fully exempt without any stipulation/limit. — C.L. Jain, Ludhiana Ans: The maximum amount of exemption in respect of compensation under CBI VRS Scheme would be Rs 5 lakh only. Over and above this amount would be subject to income-tax.
Privilege leave Q: I am working in a bank. At the time of leave fare concession, we are given the facility of encashment of one month’s privilege leave once in four years to meet the cost of journey, etc. Please clarify whether the salary received by us by surrendering one month’s P-Leave is taxable or not. Please also mention the ruling under which it is not taxable & if possible send a copy. — Bhupender Singh, Moga Ans: Amount received towards encashment of one month’s privilege leave once in four years would be subject to income-tax. Your employer should not have granted you encashment of privilege leave but reversely should have paid you money for Leave Travel Assistance twice in a Block of four years to avail tax exemption.
Senior citizen Q: I have a Connect PCO installed at my premises. As a senior citizen because of liberal exemption being enjoyed as tax rebate, the income tax is not payable by me. The HFCL deducts the TDS out of the commission amount every month, inspite of having explaining to them and also submitting the form 15C. Please advise how to have it stopped and to also how to get a refund for the year still running. I submit a Nil return of Income Tax as a pensioner (retired official). — Kamal Soni, Amritsar Ans: You may file your income-tax return and claim refund in respect of income-tax deducted at source on your commission income.
House building advance Q: I got house building advance from my office of PSEB during 1991 and paid the same in 99 in equal instalments. As per procedure of my Department, only principal amount is recovered in the first instance and interest amount is calculated and recovered only on recovery of Principal amount. Rs 67000 calculated as interest. I have taken benefit of Rs 5000 in two years on account of interest during recovery of principal amount in my income tax returns. As such seek clarification if benefit of payment of interest can be availed by me in view of the fact that payment on account of interest on HBA made by me presently. If yes, then under what rule. — Jalwant Goel, Patiala Ans: You can claim deduction in respect of payment of interest on loan for your house. The maximum amount which will be allowed as deduction to you will be Rs 30,000 p.a. |
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Inflation scales new high at 2.05 pc
New Delhi, June 30 Point-to-point inflation as measured by Wholesale Price Index (WPI)
inched up to 2.05 per cent from 1.87 per cent in the previous week and
5.3 per cent a year ago. WPI rose by 0.3 per cent to 164.3 points from
163.8 in the previous week due to 0.9 per cent rise in price of primary
articles and 0.2 per cent rise in manufactured products prices and the
index was at 161 points a year ago. The final WPI for the weeks ended
April 20 was at 162.3 as against the provisional figure of 162.4, while
final inflation was at 1.37 per cent as against the provisional figure
of 1.44 per cent. PTI
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LUDHIANA: “We were taking off in our professional lives when our father passed away. We took on the additional responsibility of consolidating the family holdings in different parts of Punjab and Haryana. Initially it seemed to be a daunting task, but the spirit with which we were brought up and the management skills we imbibed from our father during childhood saw us managing the affairs in tough times”, says Malhotra brothers, directors of Stan Autos that has achieved the distinction of being rated the No 1 company in sale, service and customer satisfaction by Maruti Udyog for the fourth year in succession.