According to government sources, exports were down 22 per cent in 99-'00, from Rs 2,265 crore to Rs 1,766 crore. Exports went down 12.6 per cent to 183.8 million kg from 210 million kg. Production in 1999 was low at 805.6 million kg compared to 870 million kg in the previous year. With good monsoon now the fears of lower production could melt away. Now that the figures for the first four months are out now, that should instill some hope for Tata Tea investors. For the period January to April, 2000, production stands at 142.9 million kg which is a good jump over the 110 million kg in the same period last year.

However, for Tata Tea, the slow down in the country's exports should cause concern. The slow down has arisen because of major buyers of Indian tea like Russia, Britain, Pland, Iraq and Iran have made less demand this year. With this demand scenario, global tea prices will be under pressure and this in effect would impact local tea price. Tea industry sources point out that despite the good production in the first four months, it is not possible to predict if the country's production would be in plenty. Should there be a short fall, the threat from the government to import tea, if necessary will arise should the prices rise.

Therefore it may not be possible for Tata Tea to raise its tea prices, taking advantage of lower production at home. Given the inflation potential in the economy, the BJP government will threaten to import tea.

Tata Tea had gained more in terms of higher realisations in recent times, than increase in volumes. Also the emphasis has shifted towards packed and instant tea, with close to 30 per cent in value, while the jump in volume terms was only 14 per in value.

So clearly Tata Tea has shifted its business strategy towards packed and branded tea. The removal of the 8 per cent excise duty levied on packed tea in the last budget should now help Tata Tea to increase its market share. With excise duty removed, the company can hope to convert more consumers from loose tea to packed tea. Its launch of Agni and Lucky Cup has been successful.

It is no surprise that the stock price of Tata Tea has nothing to drive it up. Investors have naturally put in in watch mode. But since it is close to its fundamental value the downside risk is not much.

Cinevista Communications
On the face of it, Cinevista appears to have reported impressive financial results for the fiscal ended March 2000. Net profits have soared by over 284 per cent to Rs 8.78 crore, while realisation from serials has jumped by 104 per cent to Rs 43.94 crore. But, a closer look at the results reveals a different story. Although, the revenue from serials have more than doubled as compared to the previous year, the growth in the bottomline is largely contributed by a sharp jump in the non-recurring extraordinary income.

Due to interest earnings of over Rs 7.09 crore, other income increased to Rs 7.13 crore against Rs 0.19 crore in the previous year. As a matter of fact, other income amounts to over 80 per cent of the net profit for the FY 2000.

More importantly, if the other income (interest earned) of Rs 7.09 crore is deducted from the net profit, the bottomline has actually declined by about 20 per cent. Earlier this year, the company made a public offer of Rs 10 per share at a premium of Rs 290 per share. With the issue being over subscribed by over 60 per cent, thanks to the blind run for the convergence stocks earlier this year, the company managed to earn huge interest income.

According to industry experts, advertising revenue is growing at the rate of 35 per cent - 40 per cent. Besides the increasing competition will put further pressure on the margins. This apart, the sharp rise in the administrative expenses is another cause for concern. The administrative expenses shot up to Rs 11.14 crore from Rs 4.54 crore in the previous year.On the brighter side, with a much improved financial position, the company is expected to improve its performance in the current fiscal. Moreover, the demand for the quality content is rising with many main Hindi and regional language channels launched recently. Cinevista, being a well-established player, will also benefit from the large existing content library.

During the first week of its listing, the scrip touched a high of Rs 427 per share. But due to the meltdown in technology stocks the scrip touched a lows of Rs 136. Currently, the scrip is hovering around its public offer price of about Rs 300.

Interest rates
The finance minister's assertion that the recent spurt in inflation is a short-term phenomenon and will not impact the interest rates needs to be taken with a pinch of salt, for indicators are otherwise. The rupee is being pounded and is touching new lows every passing day and fears are that India could import inflation if the rupee weakens further. Also, the honeymoon of India Inc with lower inflation rates seems to be ending as the inflation rates are on their highest since December 1998.

Expectations of a further hike in the Fed rates in addition to the recent hikes last month has contributed to leading a slide in the Asian currencies. A falling rupee coupled with increase in the oil prices could further put pressure on the interest rates. A recent Crisil report has indicated that interest rates could go up in the second half of the year due to a mismatch in the supply and demand of funds in the system.

The demand for funds by the corporates as well as the government is expected to be much higher than the projections. The corporate demand is expected to go up by Rs 80,000 crore approximately as against Rs 69,000 crore last year. Crisil also estimates that the centre will in all likelihood exceed its budgeted borrowing programme of Rs 1,16,861 crores by at least Rs 10,000 crore during the current fiscal.

On the revenue front the direct as well as the indirect tax collection targets would fall short as usual owing to some reason or the other. Also, the divestment proceeds hardly materialise. Crisil estimates that the total shortfall to be around Rs 15,800 crore despite supply of funds being higher through FII inflows this fiscal.

Moreover, since inflation has gone up to a level of 6.3 as measured by the wholesale price index (WPI), the gap between real interest rates and the nominal interest rates is not much.

Thus, in the event of government yet again over shooting it's budget estimates, it would invariably, lead to private sector getting crowded out and with all these factors interest rates are expected to head where else, but north.

KSESH (with contributions from Gaurav Dua and Sachchidanand Shukla)