What remained unclear, however, was whether this was an immediate objective of the fund, in which case the market could witness a lot of instability in the near term, or if the reduction in equity holdings was an eventual restructuring that the fund would seek to achieve over a much longer period of time, say stretched over a couple of years (since the chairman has stated that the eventual objective will be an equal weightage of debt and equity in the fund from the present weightage of 0.5:1 in favour of equity), in which case it will not suddenly force down prices nor create a negative impact.

However, the major players were taking no chances and stockprices were down in kerb trading over the weekend, and most of the blue chips traded around 1-2 per cent lower, with the likelyhood of prices being weaker when markets resume after the long holiday on Monday.

Zenith's restructuring falters: The recent announcement by the chairman of Zenith Ltd that the company would reconsider the transfer of a part of its assets owing to high stamp duty costs in Maharashtra will render the process of Zenith's turnaround almost pointless besides increasing the uncertainty over its future. Even under the best of circumstances, Zenith's complete turnaround, which necessarily would have involved a restructuring of assets, would have taken an additional couple of years at least. The stock reacted very badly to this new development, collapsing by 38 per cent from Rs 32 to Rs 19.7 in September.

The accumulated losses of Zenith, which until recently was a BIFR case, have been reduced substantially during 1997-98, from Rs 23.88 crore in the previous year to Rs 12.46 crore. In thecurrent year, the company was to transfer the assets of its industrial tools division to Dagger Forst, a group company for a consideration of Rs 14 crore. This move alone would have wiped out the outstanding accumulated losses.

Without the cash flows from the sale of assets, the two-year old restructuring attempt of Zenith's businesses may not succeed fully. With the exception of the chemicals business (H-acid), none of the other businesses have been able to contribute much to profits. Its various divisions manufacture steel pipes, dye intermediates, industrial tools and synthetic yarn. The worst performer has been the industrial tools division, which the company seemed desperate to get off its back.

Overall, the business is being hampered owing to the uneconomic scale of operations of most of its divisions, especially the synthetic yarn unit that has a production capacity of just 2,500 tonnes per annum. A decision to hive off this division in addition to the sale of the industrial tools division alsowould have proven beneficial as this business will only require additional investment for modernisation and expansion of capacities to a more economical size; while at the same time the selling prices of yarn are not remunerative. The long term plan was that Zenith's resources should be freed to concentrate on the divisions that have the maximum potential.

Until this point, the restructuring efforts were progressing well, which was adequately reflected in the stock market. For the last financial year the company has reported an improvement in a number of areas such as in capacity utilisation which improved revenues by 40 per cent. Operating margins were higher at almost 9 per cent from 4 per cent in the previous year. The focus on exports (of dyes and steel pipes) has paid off last year generating a 50 per cent growth and being a major contributor to profits. The stock gained 76 per cent from March 1998 until September climbing from Rs 18 to Rs 32.

The cash flow position has also improved with thebusiness being able to generate substantial free cash, once again through the domestic efforts of the chemicals division and exports of steel pipes and dyes. Interest costs have been reduced following conversion of loans into cumulative convertible preference shares, reduction in the cost of debt and a funding of outstanding interest. Zenith's equity base was also reduced 75 per cent in 1996 as a result of the restructuring order from the BIFR.