Wartsila NSDThe second half has always historically been better for Wartsila NSD, owing to the execution of orders in the pipeline during the latter half of the year. This trend is also in evidence for other capital-goods manufacturers. A possible reason for this could be corporates prefer to place orders in such a manner that commercial production can start during the April-September period, allowing to avail themselves of depreciation benefits for the full year.
In 1997, Wartsila had signed two agreements (70 mw) to build, operate and maintain power plants. Of this, GACL's project has been partially implemented (40 mw) and the remaining 12 mw will be executed in the first half of 1998. The engines were sourced from the Finnish parent, with the domestic arm earning a commission on engineering procurement and construction (EPC).
Besides this, nothing of much consequence has happened on the IPP front in which Wartsila is an EPC contractor. With stalemate in the liquid-fuel policy expected tocontinue till June, the status quo for Wartsila will be maintained.
As on June 1997, Wartsila has an order book of 165 mw, which includes the two 70 mw projects. This has forced the management to concede that the situation is hardly gung-ho. The best thing to have happened from shareholders' perspective is that despite profit being less than half (44 per cent) of the previous year, dividend at Rs 3.5 per share has been maintained - possibly because of the company's equity structure. Indications are that 1998 will be only marginally better than 1997.
Core Healthcare
The unaudited half-yearly results of Core Healthcare reflect how an ambitious Rs 850-crore expansion has landed the company in a financial tangle. Interest costs at Core work out to more than 50 per cent of the cost of production.
With the huge debt burden taken on by the company, interest charges shot up by 131 per cent from Rs 19 crore in the first half of 1996 to Rs 44 crore in the corresponding period of 1997, which has meantthat the company has a net loss margin of 51 per cent.
Moreover, reports indicate that the sale of the assets-formulation plant and DG-generator set would yield only minimal cash inflows, which means that the interest burden is unlikely to be reduced much by this step. Further, sale of the DG-set could translate into production losses in case of power disruptions. IV fluids are also manufactured through a continuous process water treatment plant and any disruption of power could increase waste.
Even if banks did agree to reduce the interest rates for the company from 18 to 15 per cent as done by financial institutions, the company would still have to generate huge cash surplus to reduce the principal component of debt, which is close to Rs 800 crore. The company is expecting sales of Rs 160 crore in the second half, 85 per cent of which should come from IV fluids. Sales of IV fluids are generally higher in the second half, but last year's second-half sales were lower than the first half, primarily becauseof increased competition from Wockhardt. Analysts say this has also cannibalised Core Healthcare's market share.
News reports also state that promoters have still not brought in Rs 60 crore for the part-equity payment, which is at a price of Rs 100. The reasons are quite apparent as the company's scrip is trading at the Rs 11 level.
Baroda Rayon
News reports indicate that Baroda Rayon's plan to sell its viscose-filament yarn (VSF) division to Indian Rayon have failed to materialise. It is a well-established fact that Baroda Rayon has not been doing well lately and is considering the sale of its VSF division for generating much-needed revenues. However, now that talks with Indian Rayon have fallen through, sale of the VSF division looks highly unlikely.
Consider that the other two large VSF manufacturers -- Century Textiles and Duncan Goenka's NRC -- have shown little inclination to buy out the division. Even Indian Rayon was persuaded by ICICI to consider buying the unit, which poses thequestion, whether Baroda Rayon will continue to run the division?
The company is mainly engaged in three lines of business -- polyester, VSF and nylon-tyre cord. Its fortunes turned negative from fiscal 1996 when it posted a loss of Rs 7.95 crore. Consequently, it defaulted on the redemption of its NCD series to the extent of Rs 13.06 crore.
Its problems were compounded further in 1996-97, when it defaulted in its dues to financial institutions and ICICI threatened to recall its loans. To tide over its financial constraints, the company sold off its prime property in Mumbai. A rights issue was also made in mid-1997 to garner funds.
Baroda Rayon's sales dipped from Rs 464.44 crore to Rs 353.18 crore for the year ended March 1997 and its losses increased to Rs 19.83 crore. ICICI suggested that the company sell of part of its assets to tide over its financial crisis following which, the company had planned to sell off its polyester and VSF divisions.
It had earlier approached Reliance with the proposalto sell its polyester unit, but the latter was interested only in a contractual arrangement. Now with the sale of the VSF unit also not materialising, it remains to be seen what suggestion ICICI will come up with next and how the company takes it from here.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
