The recently announced Internet Policy has proven to be revolutionary in the sense that private Internet service providers (ISPs) have been allowed to enter the crucial sector, thereby ending VSNL's monopoly. News reports indicate that the government is in the process of formulating an eligibility criteria for the private ISPs to qualify for a licence. The reports also speculate that the proposed norms might debar the entry of telecom players JT Mobile, Modicom and Koshika-Usha. This is because the proposed norms could stipulate that all licence fee defaulters to the DoT would not qualify for an ISP licence. Most of these players have bagged the licence for providing basic as well as cellular services.

Ironically, the government only recently increased the licence fee payment period for the non-metro operators to 15 years. In July, 1998 DoT had referred the whole issue to the TRAI and specified that operators seeking deferment on payment of licence fee, pending the TRAI decision,should furnish guarantees as security. Till date, eight out of the fourteen operators have complied with this condition -- Escotel being the only operator successful in meeting its licence fee obligation. Even now the non-metro cellular operators would have to pay licence fee according to the following formula: Y/11 for the years one to five and 1.2Y/11 for the years six to ten, where Y is the total outstanding licence fee obligation. But now they would be helped by an easier access to institutional funds owing to the extension. Moreover, there is conjecture that there could be a revenue sharing arrangement for the years 11 to 15.

Logically, it makes sense not to give an ISP licence to a defaulter. But considering the current state of the industry the government could very well relax norms for the operators who have furnished bank guarantees in lieu of licence fee deferment. The moot point is any norm debarring the entry of such operators as ISPs would not serve its purpose owing to the following reasons.First, there is no cap on the number of ISPs. Second, eventually these defaulters might end up meeting their licence fee obligation and be eligible for the ISP licence.

Rain Calcining:

Though the commencement of commercial production of calcined petroleum coke (CPC) was delayed by eight months, Rain Calcining is performing reasonably well and the cost overrun will not require an equity dilution. For the two-month period ended August 1998 32,000 tonne of CPC has been exportd at US $142/tonne. Another 30,000 tonne will be exported by mid-October. In the same period, Rs 8 crore worth of power (2.36 crore units) has been supplied to high tension clients at Re 0.01 above the grid rate for HT clients. Though at least two clients are not in the best financial position, Rain has the option of stopping power-supply on non-payment of dues as it is free to change the list of consumers and/or allocations on a monthly basis.

In 1998-99, the company will not perform in line with the projections made at thetime of the IPO. Against the projected raw material (green petroleum coke) cost of 46.5 per cent, the actual cost is 60 per cent because of a sharper decline in the price of the finished product. The management expects that from October onwards, the selling price should improve to US $175 per tonne (the early consignments always yield a lower price).

In 1998-99, the OPM will not exceed 35 per cent. The co-gen power plant's performance is linked to the capacity utilisation of the CPC plant. If it operates at an average capacity of 60 per cent, the sale of power could be Rs 63.5 crore. In 1998-99, the EPS will not exceed Rs 2.5 resulting in a discounting of above 6 which considering the cyclical nature of industry is on the higher side. However, low aluminium prices in the first year of commercial production is a boon, as by the time cycle turns the product will have established itself.

Tractors:

Tractor demand has been historically linked to agrarian trends. A fact clearly reflected from tractorboom witnessed during 1995-1997, in which period the agriculture sector grew by 5.8 per cent. The Union Ministry of Agriculture's provisional estimates for 1997-98 reflect a downward revision i.e. a 2.9 per cent decline in agricultural output for the year. Thus, a mere comparison to the healthy growth of 9.7 per cent in 1996-97, would indicate a slow-down in the demand for tractors.

The tractor segment posted a negative growth of 0.43 per cent in unit sales for the five month period from April to August 1998. Mahindra & Mahindra's sales at 25,862 units have dipped 9.3 per cent during the five month period. However, demographics of the region that the company services and a potent product-mix have helped Punjab Tractors post a 20.6 per cent jump in offtakes to 18,501 units. PTL has also managed to corner a market share of 21 per cent, aided obviously by the recent increase in capacities.

The trend in offtakes has clearly shaken M&M from its complacency and has forced the company to take some concrete stepsto cement its 27 per cent market share in the tractor business. The company is looking at exports to Sri Lanka, Bangladesh, South Africa, Zimbabwe and the Dominican Republic to counterbalance the dip in domestic offtakes. It is also looking to the USA as a major importer for its higher HP categories.

But a very real fear of expanded capacities resulting in an over supply situation, could worsen the impact of the slowdown in tractor offtakes. This coupled with slackening demand should affect the market valuations of these stocks in the short run.

With contributions from AG Krishnan, Urmik Chhaya & Percy Dubash