Return
to Story Page
To print: Select File and then Print from your
browser's menu
Aaron Chaze & Deepak Singh Tanwar
While the steel business has weighed down heavily on Lloyds Steel during 1997-98, in reality, a large portion of its cash-flow problems were created by its exposure in real estate through its subsidiary, Lloyds Realty. For the last two years, the real-estate subsidiary has acted as a millstone around its neck. Besides the huge capital investments that it has made and that it has to keep making in Lloyds Realty, Lloyds Steel also carries a large contingent liability for commitments made on behalf of this loss- making company. For the last year, these guarantees made to a development financial institution and a few new private-sector banks amounted to Rs 114 crore. The investments in the real-estate company by now have become very risky owing to a capital structure that is loaded with debt and due to the growing inability of that company to service its debt. That company operates with a 2.5:1 debt-equity ratio (with a total debt of Rs 240 crore) and has a negative cash flow. Lloyds Steel's own debt equity ratiois also worsening and presently is at 1.6:1 and it has a negative operating cash flow of Rs 120 crore.
Lloyds Steel itself reported a net loss of Rs 60 crore for 1997-98. Once again, its performance was weighed down very heavily by a huge interest burden that absorbed 98.5 per cent of its operating profit. Now, in addition to its own losses of Rs 60 crore, the losses of its 100 per cent subsidiary company, which amount to Rs 18 crore, have to be factored in, which will push up the total losses to Rs 78 crore. Further, Lloyds Steel also resorted to a little accounting jugglery to reduce losses; it changed the method of depreciation from written-down value to the straight-line method for its new cold-rolling mills. Since these assets are relatively new the effect of this change in method was a write back of excess depreciation amounting to Rs 21.5 crore. In addition lease rentals which were earlier written off to profit and loss account were now being amortised; this move further reduced expenses for the yearby Rs 11.19 crore. Both these accounting effects reduced the carried-forward losses for the year. The problems for Lloyd Steel will be further compounded by the fact that it has loans worth Rs 66 crore that are to be repaid in the current year.
Bajaj Auto
Bajaj Auto recorded a 25 per cent drop in its value in the past ten trading sessions, the sharpest fall in 15 years. The sales figure during the second quarter, however, does not warrant such a sharp fall in its stock price.
During the second quarter, the company has maintained the first quarter's growth of 12 per cent. The company is reported to have sold 4.05 lakh scooters in the first half of 1998-99, as compared to 3.63 lakh units in the corresponding period in the previous year. Motorcycle sales have also improved. The only area where sales have declined are in three-wheelers. During the first half, three-wheeler sales stood at 86,000, showing a drop of 9.5 per cent from corresponding period in the previous year.
Although Bajaj Auto'sperformance has been below the industry average, the market had a clear idea about it and that is what has determined the movement in the Bajaj Auto stock in the recent past. In fact, in the past two years, Bajaj Auto's market share in the scooter segment has been affected badly, and LML has gained at its expense. In the motorcycle segment, Hero Honda as well as TVS Suzuki have further strengthened their market shares. So, a 12 per cent growth should not come as a big surprise to the market. In fact, in the present state of the industry, this growth should be considered decent, if not excellent.
Since the second half is usually better in the case of Bajaj Auto, growth is expected to be higher. The legal battle between Singhanias of LML and Piaggio can also benefit Bajaj. As such, on the face of it, the recent fall at the Bajaj counter seems to be a result of the overall bearish sentiment. Sooner or later, it needs to correct the over-reaction.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
------------------------------------------------------------
This story was printed from Net Express located at http://www.expressindia.com. Net Express provides a portal to India, with news from The Indian Express and The Financial Express along with sites on travel and tourism, the entertainment industry, the power sector, the environment and much more.
------------------------------------------------------------