In the first half, sales were lower as compared to the corresponding period in the previous year by 4 per cent. Subsequently, the company reported a 10.5 per cent growth in the second half, over the corresponding period in the previous year. The operating margins which was just 0.84 per cent in the first half rose very substantially in the second half to 7 per cent, yielding 4.4 per cent for the entire year and making all the difference to the net income for the year. This operating margingrowth is also a marked improvement over the margin earned in the previous year which was just over four per cent.

This surprising performance from Alstom also comes close behind a better performance from Siemens India, where that company has managed to reduce its losses. The current years result has broken a trend of declining net income during the last four years. The sale of its Chennai property (which was done in the first half of the year itself) yielded a net income of Rs 14.9 crore, which was used to write off the entire deferred VRS cost plus the additional charge against VRS created during the year both amounting to Rs 17.45 crore. The net adjustment has been written off against profit after tax thereby adversely affecting the possibility of a payout for the present year. The RoE at four per cent has worsened despite the second half recovery.

For the current year the company should benefit from the sale of two of its divisions; the low voltage switchgears and the engineering plastics businessesto the Indian subsidiary of GE, USA.

The company recently announced that a deal has already been struck for the sale of these divisions and will result in an inflow of Rs 75 crore. Part of the proceeds of these assets will be used to repay debt (it has long term loans of Rs 30 crore and shorter term liabilities of Rs 171 crore outstanding as on balance sheet date March 31, 1997). The indications are that Rs 53 crore worth of debt will be retired in the current year. The operations of the company have been working capital intensive in the past and almost half its assets are locked up here. The main culprit has been its receivables which mostly comprise of state electricity boards (SEBs). Debtors which were high at 99 days last year rose further to 108 days in the current year.

Business wise Alstom will benefit from the sale of these two divisions as they have not been very profitable. Besides the market for these products is a very competitive one, with some large and well established domesticmanufacturers. The decision to sell these divisions also follows that of the parent company GEC Alsthom NV, to exit from the low voltage switchgears business worldwide. Revenues will fall as a total of three divisions have now been sold off, but margins should improve a little. The bulk of the annual revenues will now come from the transmission and distribution equipment business, where the company has access to the latest technology.The benefit of asset sales are yet to accrue to the company, which will both reduce debt and substantially improve the intrinsic value. The sale of assets will yield a net cash flow of Rs 40 crore or Rs 10 per share. The movement in the stock is another matter altogether as Alstom is very much a play on the growth in power generating capacity and on the health of the SEBs.