Tea production was down 3 per cent during the year. However, there was no compensating increase in tea prices. Anxiety over potential rise in wages have always haunted analysts. But this has now materialised. This year wage costs went up due to industry-wide wage settlement. This could not have been avoided.

All these combined to pull down the operating profit margin sharply down to 16.6 per cent compared to 23.1 per cent in the previous year. It was a vice-like pressure. While labour cost jumped by 16 per cent, raw material cost went up by 19 per cent! The raw material costs going up is rather difficult to understand in the context of the auction prices going down, unless the company had been forced to reduce its sales price. With raw material costs taking away 22.7 per cent (19.8 per cent) and employee costs snipping 22.7 per cent (20.3 per cent), the results leave rather a bitter taste in the mouth.

While hiccups in production side need to be taken in stride, it is the price front, where the outlook is far from hopeful. There is always a fear that the government would import tea, should the domestic prices move up. Last year, there had been proposals to import duty-free tea from SAARC countries, especially Sri Lanka. Unless the Indian tea companies perk up on their quality, the danger will continue to haunt them. However, the recent move of the government on import duty on vegetable oils, shows that the government is not all that insensitive to the needs of the domestic industry, as and when the need arises. We witnessed a clear-cut initiative to strike a balance between the needs of the consumer and protecting the industry. In the case of the oil seeds industry, if the government was insensitive, it could have led to farmer's not opting to sow oil seeds, with its attendant dangers to the supply situation, down the road.

Will the same approach be adopted towards the tea industry, when the need arises? Time alone will tell.

In the meanwhile, the only recourse for Tata Tea is to further intensify its brand equity and hope to extract higher margins. It is also actively increasing its distribution, as in the case of Agni. We also need to watch the company's strategy for marketing Tetley brands. Weak demand from Russia will continue to keep the prices depressed.

Punjab National Bank
The Punjab National Bank could have done better on the eve of its proposed IPO, than the results of FY 2000. The bank intends to come out with an IPO of the size of Rs 105 crore by September this year which is likely to dilute the government holding by 30 per cent. The bank has posted a 17.8 per cent growth in the topline. The total income for the year ended March 2000 was Rs 5,882 crore as against an income of Rs 4,993 crore in the last year owing mainly to a moderate growth in the deposit mobilisations and a slightly better growth in the advances. Deposits grew by 16.4 per cent to Rs 47,483 crore as against Rs 40,777 crore last year. Growth in advances was at 18.5 per cent touching Rs 22,572 crore against Rs 19,047 crore in the corresponding period in the last year.

The bottom line has inched up marginally to 9.7 per cent over the last year's figures which were adversely impacted by higher provisioning. The net profit for the year was Rs 408 crore compared to Rs 372.12 crore for the corresponding period last year. The situation was salvaged by the non-interest income which witnessed a substantial growth of 33.6 per cent. On the other hand, the interest income remained more or less stagnant. This emphasises the lesser significance of the interest income component vis-a-vis the non-interest income component for the banks.

The total expenditure however, showed a significant rise of 21.4 per cent due to a rise in the operating as well as interest expenses. NPAs continue to haunt the bank, which declined marginally to 8.52 per cent from the earlier figure of 8.96 per cent of the Net advances. The total provision made towards NPAs for the year was Rs 197.46 crore, down from Rs 239.57 crore in the previous year. Also, an additional provisioning of Rs 51.50 crore was made towards standard advances in accordance with the RBI guidelines. Although the bank was able to reduce Rs 573.61 crore worth of NPAs in the year, another Rs 868.19 crore worth of fresh NPAs were added to the tally. The entire investment portfolio is marked to market as against the mandatory 75 per cent. The bank does not have a very strong treasury nor competitive products as compared to some of its peers like the Corporation Bank or SBI. The capital adequacy ratio has slipped to 10.31 per cent as compared to 10.79 per cent in last year.

The management is keen on having a share of the insurance sector pie, subject to detailed guidelines from the central bank. However, the management is worried about the guidelines on profitability of subsidiaries. Of the four wholly-owned subsidiaries of the bank, PNB Asset Management Ltd and PNB Capital Services Ltd registered losses in 1997-98 and 1998-99 and this could come in the way of the insurance business. The bank which missed the technology bus is trying to catch up before it's too late.

The bank plans a major thrust towards automation and technology initiatives like telebanking, Internet banking and anywhere banking etc. The bank has appointed Tata Consultancy Services for its IT initiative which will initially cover 600-700 branches. It has also earmarked Rs 125 crore for the IT initiative.

The management is also in talks with the American Express, HSBC and StanChart for its credit-card venture which could be launched soon. This is with the intention of giving a retail thrust. These measures should augur well for the banks initial offering. The performance in terms of return on assets witnessed a decline of 0.05 per cent at 0.75 per cent although, staff productivity has witnessed a marginal growth.

KSESH (with contribution from Sachchidanand Shukla)