However, buyback will not be implemented in 1997-98 for the simple reason that time is not sufficient even though the EGM will be held in February. Another reason is that in 1998-99, due to repayment of loans of Rs 34.5 crore (mainly by withdrawing the advances to group companies) and assignment of sales tax liability, the balance-sheet size will shrink by Rs 42 crore, and adjusted for the anticipated PAT of Rs 30 crore (30 percent payout ratio), the reduction will be Rs 21 crore. No debt will be raised in 1998-99. In the worst-case scenario (without buyback), the balance-sheet size will remain same as last year resulting in substantially better RoCE.

The announcement of buyback will result in the stock spurting and will touch Rs 300. The buyback will be at an ideal time for the company as, due to capacity build-up, PP and PE (raw material) prices will decline. The price has declined by 10 per cent since the first week of December, but is still higher than the October price. Besides, the Silvassa unit will stabilise in March 1999.

As regards the tax implications, neither the share premium nor the proceeds of an earlier issue can be included under "accumulated profit", and hence will be out of the purview of Section 2(22)(d). The often-quoted judgement in favour of dividend treatment is Punjab Distilling Industries Ltd v CIT (1965) 57 ITR 1 (SC), in which the court dealt with the issue of super tax. But can an issue for which an ordinance was issued be treated as an anti-avoidance move? Even if treated as dividend, the question of what portion is dividend arises. In CIT v Surat Cotton Spg. & Wvg. Mills (P) Ltd (1993) 202 ITR 932 (Bom), the high court held that once the amount is treated as dividend, it could not be again taken as sale for the purpose of capital gains. In any case, if the cost of acquisition of a shareholder is above Rs 300, how will the dividend be calculated?

Amtrex-Hitachi: The tie up between Amtrex Appliances and Hitachi of Japan has been consumated last week with Hitachi announcing that it would pick up a 15 per cent stake in Amtrex Appliances through a preferential offer. The offer is to be made at a price of Rs 30 per share. In the immediate aftermath of that announcement the stock raced to catch up and eventually exceeded the offer price. It is clear that the price rise is more than the market just trying to revalue the stock to register the news of Hitachi's accquisition as well as the accquisition price. It is also a signal of the markets acceptance of the fact that this is a very positive development taking place for Amtrex Appliances.

A simple reading of the marketplace for air conditioners provides an indication of the potential before Hitachi. First, there is still a tremendous growth potential for competitively priced premium products. In the last six months and following a series of price cuts Carrier Aircon which is the market leader has grown its volumes by 20 per cent, while revenues grew by 19 per cent. But in split units, which is a high growth segement Carrier recorded a 25 per cent growth in volumes. Second, Carrier Aircon is the market leader with a 20 per cent marketshare with the rest of the market being scattered between others like Blue Star, Fedders Lloyd, Videocon International and now Kirloskar Pneumatic besides the unorganised sector. The markets view will be on how soon Hitachi can introduce its range of products and raise the company's growth rate. Carrier's growth path can to a certain extent be replicated by Hitachi Amtrex, atleast that is the general view.

The stock has so far gained 15-20 per cent in the last few days. And now that the stock value has gotten past the preferential offer price, it remains to be seen how Hitachi takes on the market leader, and expands its marketshare, which in turn will determine the future increase in the price of the stock. Carrier's growth in the last six months has come at a price; operating margins have dipped by 10 per cent as it reduced prices to garner marketshare; Hitachi's entry could trigger another round of price cuts.