General Electric's subsidiary GE Medical Systems is buying out Elpro International's 49 per cent stake in GE Elpro Medical Systems. Confirming this, Elpro International president S S Chaudhari said, ``Elpro International invested 49 per cent stake with GE ELpro in 1993. The return since then has not been commensurate with the investment made and, hence, the decision to sell out. The realisation from the sale of shares is US$ 630,000.''

GE Medical Systems had entered into a joint venture agreement with the Pune-based engineering company to manufacture a wide range of X-ray components and equipment. While the GE arm holds 51 per cent stake, the balance is with Elpro International. As the Indian firm had acquired 15,19,000 equity shares of Rs 10 each in the joint venture, the sale will bring in a net gain of almost Rs 1 crore.

Meanwhile, Elpro International has also signed an agreement not to compete with the GE subsidiary in the x-ray business after the sell-out. Says Chaudhari, ``Elpro International moved out of the x-ray business in 1993 itself with the approval of its shareholders and spun off the x-ray division into a joint venture. Thereafter, we were only an investor to the extent of 49 per cent in the joint venture.''

However, sources say even after the x-ray business was hived off as a joint venture, Elpro International continued to undertake manufacturing activities as per the sourcing agreement (between the company and GE Elpro) for fabrication of parts and components. The selloff agreement, they say, means Elpro International is totally withdrawing from the field of medical diagnostic to focus on its core business. In fact, there are rumours that Elpro is selling its stake in the joint venture to finance its proposed restructuring after the poor financial performance during 1996-97. Company officials, however, deny this.

Chaudhari says Elpro's performance in fiscal 1996-97 slipped due to pressure on margins because of increased competition from overseas suppliers in view of the drastic reduction in import duties on electronic and electrical items. There was also a sharp drop in the domestic demand from the state electricity boards and other consumers, adds Chaudhari. During 1996-97, Elpro International's net profit plunged from Rs 4.89 crore to Rs 2.45 crore. While the operating profit margin fell sharply from 20.08 per cent to 13.96 per cent, net profit margin dropped from 8.74 per cent to 5.09 per cent during the period under consideration. On a constant equity of Rs 3.56 crore, Elpro International's earning per share (EPS) also fell drastically from Rs 13.2 to Rs 6.8.

According to company officials, expansion and diversification will be thrust areas in the future to boost profitability. Market sources say there is a possibility of GE hiking its stake in Elpro International. This is probably one reason why Elpro International's scrip has risen from Rs 40-41 in mid-May to over Rs 60 in early July. Company sources, however, refused to comment on the issue.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.