During 1997-98, with a 25 per cent rise in sales to Rs 1,216 crore, Hindustan Zinc managed to record an impressive jump of over 400 per cent in its net profit to Rs 201 crore. The phenomenal net profit increase can be directly attributed to higher zinc prices in the international markets. Zinc prices touched a nine-year high of $1,730 per tonne on the London Metal Exchange (LME) during the month of August 1997, almost 70 per cent higher than 1996-97's average price of $1050 tonne.

Overall, zinc prices remained higher by around 30 per cent throughout the year compared to 1996-97's levels whereas the jump in cost was comparatively insignificant. Higher volumes further made their contribution. Zinc output at Hindustan Zinc was up by 24 per cent in the first ten months of 1997-98. Had lead prices too remained bullish, results could have been more impressive. Lead contributes around 10 per cent to the company's sales.

While improved results were expected, what is surprising is the netprofit of Rs 70 crore in the last quarter of 1997-98. Since zinc prices during this period remained in the region of $1,010-1,150 per tonne on the LME, the figure comes as a surprise.

On the bourses, the stock has jumped to Rs 17, supported by a huge jump in volumes. On an equity capital of Rs 422 crore, the latest earnings result in an earnings per share of Rs 4.70. The current price discounts these earnings with a PE multiple of 5. Though the stock has jumped prior to the announcement of these results, it is yet to cross its August high, when it touched Rs 35.

Since zinc prices are back to normal levels, net profit is unlikely to record spectacular growth in the current year.

Volvo

Newsreports suggest that Volvo -- the latest entrant in the HCV business, does not seem to have fully understood the dynamics of the Indian truck market. How else can one explain the spectacular frills in its `total transport' package deal to be launched in June 1998. Training of drivers and an extensive servicenetwork is now a mandatory part of the marketing effort. But how does Volvo plan to explain and sell the `road relay box', which is akin to a `black box' in an aircraft?

While this device would record the trucks' movements, it will also cover fuel consumption, stoppage time during a journey, overloading and overspeeding, of the trucks. All this hitech wizadry clearly comes at a cost. And if included as standard equipment in the vehicle, it will propel prices northward, and the acceptance level of this technology would be very slow.

Also given the infrastructure problems in India, how would the technology take into account stoppages due to traffic jams. Volvo does not seem to have heard of product failures which have been brought about due to the technology being far ahead of its time. The two cases of Kinetic Merlin's computer television and Videocon's Picture-in-Picture are two examples of just such a problem.

Volvo also does not seem to be paying attention to the depressing figures for truck sales,which in the HCV segment have dipped 38 per cent to 80,225 units for the eleven months ended February 1998. It would do better to take heed from Telco's plight which recently announced a 30 per cent crash in domestic volume sales. What with stagnant freight rates and the second hand truck market becoming more attractive, such frills will just not entice the buyer.

Power reforms

The power ministry has mooted a five-year counter guarantee format for new power projects. It is not clear what purpose this will serve. Of the eight fast track power projects of 1991 fame, how many have been issued counter guarantees so far? Only three. The logic behind five-year time-frame is supposed to be that it is the period required by SEBs to earn a rate of return of minimum 3 per cent. While there is nothing sacrosanct about the figure, none except Himachal Pradesh SEB earns the minimum required return.

The seriousness with which the issue has been taken up by the government can be understood by the measures ithas proposed. It plans to drop graded tariff and minimum agricultural tariff. No actions are being considered for improving T&D. The subsidies of SEBs will have to be funded by state in a transparent manner-using taxpayer's money. India, of course is the only country in the world (with the possible exception sub-Saharan Africa) to charge higher tariff to high tension consumers. The point to be considered is that how will a 3 per cent return help. Even in Japan, with cost of debt (pre-tax) being one per cent, a three per cent return won't make sense.

Another point is that even a medium sized greenfield power plant of 100 mw will take one and half years to be ready. So far, the counter guarantees have been targeted at mega projects, which take at least three years to come up. That means investors will have the comfort of the counter-guarantee effectively for only two years.

The ministry seems to have got its calculations badly wrong. For 1996-97, only Meghalaya SEB had a single digit negative rate ofreturn. After that, the lowest RoR was -- 10.9 per cent for Maharashtra (without subsidy) and Kerala had the lowest loss of Rs 154 crore (RoR -- 11.2 per cent).

The only option is to take the steps which government does not wish to and revive the SEBs. Nothing else will work.

Emcee (With contributions from Deepak Singh Tanwar, Percy Dubash and Urmik Chhaya)