Financial Express: The Index

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The Index

Gammon India

Gammon India Ltd (GIL) has kept its eye on the ball to post decent results under difficult circumstances. With a growth of 19.75 per cent in the value of work certified for the year ended March '98, GIL looks to be back in line with its CAGR of 20 per cent for the period 1991-96 considering the mere 10 per cent growth last year. This increase in business is commendable, considering the serious recession in the construction and engineering industry, although the scrip is still stuck at around Rs 160. The rise in business can be attributed to the number of contracts for bridges completed in Nepal last year and the company's foray into faster-moving projects like construction of cooling towers for power projects.

Getting into faster-moving projects has cut down costs, as a result of which, operating margin, which stood at 7.93 per cent last year, improved to 9.79 per cent. The rise in sales and the fall in costs together helped the operating profit jump almost 50 per cent to Rs.21.12crore. As the interest-cost component and depreciation charges were almost the same for both years, the profit before tax saw a jump of almost 95 per cent to Rs.10.16 crore. A higher tax rate of 31 per cent, compared with 13 per cent last year, was the only individual cost that eroded the bottomline substantially. While the lower effective tax rate for the previous year was a result of export shelters the company had received, it could not avail the same this year, as the Nepal contracts were all rupee-denominated. However, it can still boast of a healthy bottomline of Rs 7 crore, compared with Rs.4.55 crore made last year. While the EPS works out to Rs.32.39, that will soon be diluted by 33.33 per cent after the 2:1 rights issue at the end of this month.

The present financial year looks good for GIL. A Rs 70-crore contract for building over-bridges received from the Maharashtra State Road Development Corporation (MSRDC) heads the list of a healthy order book.

Pertech Computers

Pertech ComputersLtd is a reminder that being in the information- technology industry is no help if you don't get your sums right. The one- time leader in the micro-computer segment with a market share of around 25 per cent is in deep trouble. A mistimed business decision in September 1996 bears much of the blame. The company had launched its much hyped 'Millennium Scheme', in terms of which it was offering computers at throwaway prices, in the range of Rs 18,500 to Rs 49,500. The company's strategy, if it could be called one, was basically trying to eat into the cake of players like HCL and also match the grey market for assembled computers. This was a desperate attempt to boost volumes at a time when inventories had piled up and profitability was plunging.

The unprecedented response to its scheme proved to be a major embarrassment for the company. PCL was flush with Rs 70 crore as customers flocked to avail themselves of the scheme. The order book reached about 20,500 units, way beyond PCL's capacity to cater to in ashort period. All this led to the supply situation going haywire and the company defaulting on its commitment.No surprise that the company's bottomline was in the red for the previous financial year. Moreover, PCL has been hemmed in with libel suits totalling about Rs 10 crore. Due to the enormous resource crunch, the company also ended up defaulting on principal and interest payments.

The company has now decided to repay its creditors and fixed-deposit holders, thanks to some largesse from a consortium led by IDBI, which decided to infuse funds worth Rs 124 crore for a bailout. The company requires around Rs 100 crore to put on track its manufacturing arm Altos India Ltd. At present, PCL owes banks and financial institutions Rs 84 crore. PCL's lenders obviously feel that this is the only way to recover their long-term exposure. But PCL's problems are operational, and merely throwing good money after bad will not help.

Satyam Computer

The Satyam computer scrip appreciated over Rs 100 last week, aclear reflection that Satyam's bottomline for the first quarter is higher than the net profit posted by it for the first half of the previous year.

The company, which commenced operations in 1988, has taken pride of place among the top 15 exporters, and stands as one of the leading software developers. Previously, mainly perceived as a Y2K company, Satyam has diversified into other infotech areas like e-commerce and Internet. For the first quarter ended June 30, 1998, turnover has soared by 166 per cent to Rs 78.90 crore. Exports contributed Rs 78.78 crore to the turnover, a rise of 167 per cent. During the period, the share of business from Y2K projects was 29.9 per cent of the turnover. Offshore business contributed over 75 per cent to the turnover, while the rest came from on-site development. On account of an accelerated depreciation policy, Satyam provided a depreciation of Rs 7.55 crore, up by 256 per cent. A provision of Rs 23.25 lakh was provided towards post-project execution-warranty expenses inrespect of software contracts. Interest burden rose by 33.9 per cent to Rs 4.42 crore. Inspite of all this, net profit zoomed by 137 per cent to Rs 15.29 crore. The EPS on an annualised basis works out to Rs 23.5, against Rs 9.9 in the corresponding period last year. While rupee depreciation to some extent has offset higher salaries, the current high margins could be under pressure.

Emcee (With contributions from Mobis Philipose and AG Krishnan)

Net Express

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This story was printed from Net Express located at http://www.expressindia.com. Net Express provides a portal to India, with news from The Indian Express and The Financial Express along with sites on travel and tourism, the entertainment industry, the power sector, the environment and much more.

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