BPCL public issue

Bharat Petroleum Corporation (BPCL) plans to raise Rs 1,100 crore through a public issue during 1998-99 and 1999-2000. This will involve offloading 44 million shares which will bring down government holding in the corporation from 66 per cent to 51 per cent.

BPCL's public issue will come at a time when its requirement for funds will be the maximum for its refinery projects. The more important fact is that government's holding in the company will come down to 51 per cent. This is likely to prevent any further need for fund through the equity dilution route as the government would not like its stake to be reduced below the 51 per cent mark. This should be of comfort to investors.

Most of the currently envisaged capital expenditure plans will be through by the end of the century, and they would start generating adequate revenues. Any further needs could then be met through internal accruals and debt financing. Incidentally, 88 per cent of the company's capital expenditure since 1976 has been met through internal accruals.

According to the company's management, borrowings by the corporation due to non-receipts of dues from the Oil Coordination Committee (OCC) will bear a coupon rate higher than that which will be received on the bonds. The rate differential is expected to be borne by OCC. This raises an interesting question.

It has been well understood that repayment of the oil pool account dues was basically a book entry by the government. All interest and principal was actually to be repaid from the surpluses in the oil pool account in the years to come. Now the differential that will arise by pledging the government bonds will be transferred to the pool account.

Thus the pool will now have to generate surplus enough to service the 10.5 per cent interest for the government bonds, differentials of the interest rates and on top of this should also have enough funds at the end of five year to repay the principal of Rs 18,000 crore.

How this will occur is anybody's guess. However, the oil companies will have a temporary relief as the extra interest burden will not be shown in their books.

Financing auto sales

Cutthroat competition in the Indian automobile segment, coupled with the fact that both the two and four-wheeler segments are currently going through a recessionary phase has prompted many manufacturers to give freebies and innovate, in order to push sales. The array of new product features on offer like Mahindra-Ford's Anniversary offer, Telco's - Sumo Deluxe and the remodelled Safari, Mahindra & Mahindra's - Armada Grande, General Motors - new automatic transmission for the Astra, the relaunch of the the 118 NE as the Viceroy by Peugeot etc.Cements this point of view.

Free gold, free vacations, gifts, free insurance and car swaps are also some of the other schemes which manufacturers are adopting to entice customers. But interestingly not many companies seem to have exploited funding mechanisms as price innovations to push sales. After all in India it has been proven time and again that it is the "price" of the product which is the ultimate clincher of a sale.

Bajaj Auto in the two-wheeler segment has lead the charge with its 9 per cent finance scheme. Which incidentally has been the lowest interest bearing finance scheme ever in the two-wheeler automotive segment. And going by the figures published recently the scheme seems to have done Bajaj's fortunes no harm. Consider that sales for the month of August 1997 (with the help of the scheme) stand at 88,070 vehicles which is almost 21 per cent higher than in the month of July. The most significant turnaround for Bajaj has come in the scooter segment which saw sales jump from 45,949 units in July to 60,472 units in August. Incidentally, it was the near stagnation in scooter sales, during the second-half of last year that affected Bajaj's performance.

The Korean car major -- Daewoo is the other automobile company which has exploited this angle, although without too much success. Daewoo's one-year "0" zero interest scheme and the 12 per cent interest scheme are examples of Daewoo's attempt to push sales.

While such schemes would come and go, the fact remains that only companies which have built up huge capacities and enjoy economies of scale with low production costs would be in a position to undercut margins in an effort to remain competitive.

Corporation Bank

Corporation Bank's IPO is likely to sail through, given its conservative pricing. Be it reconciliation of inter-branch transactions (reconciled up to March 1997) or marking investments to market (83 per cent), Corporation Bank is at the top of the table. According to the management, the bank's entire portfolio will be marked to market in the next couple of years. Even its return on capital employed at 1.66 percent is the highest among all public sector banks.

Corporation Bank's gross NPA/gross advances and net NPAs/net advances percentages at 9.9 per cent and 3.63 per cent, respectively, have worsened in 1996-97 compared to 9.67 and 2.26 percent, respectively, at 1995-96.The estimated RoCE for 1997-98 is expected to be 2, which is very good. The bank has been quite innovative. In fact, the cash management service is highly appreciated by corporate clients. Income recorded a compounded growth of 36 per cent against 21 per cent growth in interest. Even better, it managed to reduce operating expense to 2.43 per cent of capital employed as against 2.88 per cent in 1992-93.On all parameters, Corporation is a cut above the run-of-the-mill public sector bank.

Emcee( with contributions by Shihsir Asthana, Percy Dubash and Urmik Chhaya)

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.