Thomas CookA Strong second-half, aided largely by the volatility in the forex markets has helped Thomas Cook (TCIL) shore up its bottomline. The 6.15 per cent growth in the bottomline at Rs 14.49 crore, is largely due to the 17.45 per cent jump in profits in the second-half. Had the recent rupee devaluation not taken place, TCIL could have ended the year with a negative earnings growth, in line with the first-half dip of 2.99 per cent. A lower effective tax rate of 32 per cent compared to 44 per cent last year has also helped the company.
However the net margins which have stagnated at around 26 per cent. An equity dilution from Rs 5.25 crore to Rs 8.75 crore, on account of a 2:3 bonus issue last year, saw earnings per share drop from Rs 26 to Rs 16.56.
The income from services was up a mere 4.21 per cent at Rs 54.68 crore, buoyed largely by a 17 per cent jump in revenue in the second-half. The increased level of activity, in line with the company's expansion plans to increase its geographicaloperational base in India have also taken a toll.
Increased advertising and fresh recruitment have affected the company's performance. Operational margins have dipped from 48.45 per cent to 43.4 per cent.
The increased interest burden of Rs 1.58 crore (Rs 0.86 crore last year), mainly due to increased working capital requirements further eroded the bottomline. The increase in physical assets such as the new offices in Calcutta, Bangalore, Jallandhar and Goa, have all resulted in a burgeoning depreciation charge up 57.32 per cent to Rs 2.58 crore.
TCIL -- the one stop travel shop--benefits from being the only RBI approved non-banking dealer in the business. Despite the intense competition from money changers TCIL's volume driven forex business and its quick response to to forex fluctuations has given the company the required competitive edge.
Videocon Appliances
Videocon Appliances proposes to come out with 1:1 right issue priced at not higher than Rs 20 per share. Assuming dilution at therate of Rs 15 per share (current market price: Rs 16.15 per share), equity dilution works out to be Rs 42.25 crore. For the shareholder, it really makes little difference whether equity is diluted or not. The company has consistently been a value destroyer that is its return on capital employed (PAT+post-tax interest/Average Capital Employed) has been lower than its weighted average cost of capital (WACC).
In 1996-97, against a WACC of 14.5 per cent, its RoCE was a mere 7.2 per cent. In 1995-96 and 1994-95, WACC was higher than RoCE by 4 percentage points and 4.5 percentage points respectively. This is despite the fact that the company operates on a comfortable debt:equity ratio (1.9 in 1996-97, 1.19 in 1995-96 and 1.45 in 1994-95).
Though in three out of last five years, the company has generated free cash it has not been really significant. 1996-97 and 1994-95 have been particularly bad from the working capital management point of view. The working capital requirement has been more than three timeshigher than the company's NOPLAT (net operating profit less adjusted tax). The strain on cash flow is evident from the fact that in 1996-97, the company raised NCDs amounting to Rs 50 crore at 21 per cent.
Contrary to popular belief, the poor performance of the company can't be attributed to investments made as investments account for just 9.5 per cent of capital employed. Yet the investments cannot by any standards be called prudent. For instance, the average cost of acquisition of Videocon International works out to be Rs 72.25, 28 per cent higher than the 52-week high.
The first-half results are hardly any different from second-half result of 1996-97 after accounting for other income and tax adjustments. Another point that shareholders must note is that though net profit has declined by 42 per cent in 1996-97 as compared to 1995-96, the directors' report is totally silent on the performance of the company.
MTNL
The acknowledgement by MTNL that their direct exchange line (DEL) addition thisyear is going to be short by 20 per cent because of delay in work by certain contractors and not because the demand has slowed down, shows that MTNL has still to come out of the hangover of the past.
In the past three years, MTNL has been adding over 2 lakh lines a year, when the waiting list (WL) was itself was over 2 lakhs. The true demand should logically be WL + DEL. When the WL has come down from over 2 lakh to around 10,000 this fiscal, MTNL should realise that it can no longer sustain the traditional 18-20 per cent growth in lines added.
Logically WL clients are the ones who would bring in more revenues by more usage as they really require telephones. The new users are not the types who would bring the same growth in revenues. Over the last two years, the growth of lines has been at a rate of 18.5 per cent and 15.5 per cent respectively, and this has resulted in the top line revenue growth of 15 per cent and net profit growth of 43 per cent.
Unlike the private operators who have to pay a fixedlicence fee, MTNL has to pay a flat rate of Rs 900 per subscriber to DOT. For private operators, the addition of new subscribers would bring down the cost per subscriber.
But for MTNL, this actually increases the outflow to DOT. The most important driver in cash flow in today's scenario is the revenue per line, which has been decreasing for MTNL.
Emcee (with contributions by Percy Dubash, Urmik Chhaya & Manish Saxena)
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
