Saurashtra CementThe acquisition of 9.5 per cent stake in Saurashtra Cement by the Autoriders group could be the beginning of a spate of meaningless takeovers. This has given mergers and acquisitions a bad name abroad. However, the market is abuzz with rumours that Autoriders is a front for a major cement company, although the company in question has refused to consider the possibility. The problem with Saurashtra Cement (SCL) is that it is a small company (capacity 1 million tonne) which owns a substantial stake in the 1.6-million-tonne Gujarat Sidhee -- a BIFR case in itself. Gujarat is a battleground for Gujarat Ambuja Cement and L&T, and Saurashtra Cement won't be in a position to compete as is reflected in its first-half results.
The best indicator of the strangeness of the takeover attempt can be judged from the fact that Crisil has downgraded the NCD programme of Saurashtra Cement. SCL has drawn up plans to expand the capacity, set up a jetty and acquire a ship. If debt is downgraded, therecould hardly be any reason for acquiring equity. Another point to be considered is the track record of the proposed acquirer. Autoriders had launched the "Limouzine" service in Mumbai, which had to be shut down owing to non-viable operations. Its business has nothing to do with cement. All things considered, there does not seem to be any value-addition scope by the acquirer. However, unlike Raasi, the capacity is coming cheap. The plant, too, is excellent. The problem is that the likely acquirer is yet to prove its management skills in the area in which it operates.
Air India -- Indian Airlines
The endorsement by both Air India and Indian Airlines for a holding company is a precursor to a possible merger. The fact that both the air carriers were meant to complement each other still remains. But a replication of feeder routes and infrastructure in recent times has led to competition and a consequent downturn in the fortunes for the two airlines.
In fact, AI's fleet size of 28 aircraft has ensuredthat the Maharaja be relegated to the role of a small regional player in Asia, dependent on the NRI traffic from the Gulf. Another internal failure has been the company's inability to monitor its fare discounts and related distribution costs. As far as the holding-company concept is concerned, the plan envisages a free administrative hand to the AI and IA managements. Industry sources suggest a reconstitution of speciality units, such as engineering, ground and allied services into separate profit centres as an alternative. But given the precarious financials of both the carriers, swift action is needed. The management should be strong enough to implement quick code- sharing agreements between the two carriers and international airlines. The management should also have the collective bargaining power to ask the government for a rationalisation of aviation-turbine fuel with international standards.
Another matter which cannot be delayed any further is the acquisition of the new fleet of medium-rangelong-range (MCLR) and other aircraft for both AI and IA, which has been delayed for over two years.
Besides the merger, subsequent privatisation of the two airlines also looks to be an absolute must. A VRS for manpower optimisation is also essential as would be clear from the following report.
Air India
Air India is a classic study in stagnation. Between 1992-93 and 1996-97, passenger traffic revenue grew 10.25 per cent (CAGR). During the same period, major cost centres- employee cost and fuel charges- remained virtually stagnant at 41 per cent (39.8 per cent in 1992-93). However, the problem with Air-India is that its profits come from passenger traffic, which, in percentage terms, has remained constant. The reason for the company making a loss of Rs 391 crore is that its other revenue sources do not generate profits. In 1996-97, the company has window-dressed its accounts to show lower loss by Rs 55.76 crore. According to the management, the asset acquired in post April 1996, period on financelease has been treated as assets owned by the company. In a finance lease, the title may or may not be eventually transferred. Unless the asset is actually transferred, Air India has little business treating assets as owned. During 1996-97, borrowings went up 20 per cent, and it is clear that Air India is heading towards a debt trap.
VSNL
Reports indicate that Videsh Sanchar Nigam (VSNL) is slated to kick off its subsidiary VSNL Seamless Services Ltd (VSSL) in the near future. The Department of Telecommunications (DoT) had, about a year ago, asked VSNL to hive off its value-added services businesses into a separate subsidiary. This is because VSNL's value-added services gave it an advantage over others, especially since it is an Internet service-provider as well as the international gateway. The move to hive off a subsidiary from VSNL thus would form a level playing-field.
However, it is also essential that an arm's length relationship be maintained between VSNL and its subsidiary. Quiteinterestingly, traffic volumes during the first half of financial year 1997-98 increased 24.19 per cent. Revenues from value-added services, such have almost doubled during the period.
Emcee (with contributions from Urmik Chhaya, Percy Dubash and AG Krishnan)
