In the past few weeks, the Tisco scrip has seen a lot of upward movement. This was primarily aided by the expected rise in steel prices and reports that the company has achieved financial closure of the CR project at an extremely low cost of capital.

The project cost is around Rs 2,335 crore. Now, for meeting the financial closure of the project, approximately Rs 800 crore would be met from internal accruals, Rs 500 crore would come from IDBI, and around Rs 424 crore through the proposed GDR issue. This leaves an amount of Rs 600 crore for which the company has approached the Steel Development Fund. Reports indicate the steel ministry has decided to allocate Rs 600 crore from the fund to Tisco.

But there is a question mark on the availability of Rs 600 crore from the fund. Of course, the steel secretary has gone on record saying that Rs 600 crore would be provided by the fund to Tisco for the CR project. We are not disputing the statement. But the fact is that at present, the fund does nothave cash of more than a few hundred crores. So how can it give money to Tisco?

According to the Joint Plan Committee officials in Calcutta who manage the fund, no cash would flow from it fund to Tisco. What would actually happen is that out of Rs 1,200 crore owed by the company to the fund, the ministry would allow Tisco to treat Rs 600 crore as a separate loan for the CR project. The rate of interest for this has been set at 8 per cent. For the remaining amount owed by Tisco to the fund, the company would have pay out Rs 2.5 crore per month to the ministry.

This raises two important issues. First, Tisco would have to raise Rs 600 crore more as the present method seems nothing more than a book entry. The company declined to comment on the matter. But prima facie, this may raise the capital cost for the company. Second, for the last three years, the company has not paid any cash to the SDF account. Now, they would have to shell out an additional Rs 30 crore cash per annum. This can put additional strainon the internal accruals because lower realisations would result in less cash generation from operations this year.

Telco

The Telco scrip continues to remain in the throes of a strong bull run, even a week after the launch of the Indica. The stock has moved up 51 per cent in a month, and trading was frozen on Tuesday at Rs 178.80. The initial euphoria was justified, given that Telco's move to reduce its levels of vertical integration by hiving off its gear box, axle and engine businesses into separate joint-venture companies bodes well for the future. However, the current buoyancy in the stock is puzzling.

The frenzied trading interest on the Telco counter witnessed on Tuesday was fuelled by rumours of a state government exemption of 10 per cent sales tax on the Indica. While it is true that if the Maharashtra government does allow the sales tax benefits under the Package Scheme of Incentives of 1993 to the Indica project, the Tatas stand to benefit immensely. However, the fear of setting aprecedent in the Telco case in terms of incentives offered, which might be utilised time and again with great loss to the state exchequer, could douse the state government's enthusiasm.

More importantly, it will only be a one-time profit on sale of its ancillary units, which will help cushion the earnings growth at Telco in the interim. Given that Indica is likely to achieve break even only at around 60,000 units, this could force Telco to absorb losses on the small car for the next two years, given its production schedule. All this reflects the fact that the negatives for Telco, at least in the short term, outweigh the positives. Yet, on the flip side, given the recent downgrade by Crisil and the imminent fear of losing its once-preferred investment-destination status, the Maharashtra government could decide to make an exception for Telco.

Godavari Fertilisers

After the announcement of a hike in concessions for partly decontrolled fertilisers, stocks of almost all major players -- GSFC, Spic,Hind Lever Chemicals, Zuari Industries and Godavari Fertilisers & Chemicals -- have shown significant gains. The GSFC scrip has risen from a low of Rs 53.45 on December 28 to a high of Rs 73 on January 4, Spic has gone up from Rs 21.95 to 26.90 during the same period, and Zuari Industries has shown an impressive rise of over 44 per cent to Rs 80.40.

Perhaps the most impressive gains have been recorded by the Godavari Fertilisers & Chemicals scrip, which has moved up from Rs Rs 9.50 to Rs 17 in the period December 28 to January 4. The reasons for this are of course not far to seek. The company, which has the largest installed capacity for DAP in the country, posted a loss of Rs 13.75 crore on a turnover of Rs 411.02 crore for the six months ended September 1998. For the corresponding period in the previous year, the company had posted a net profit of Rs 16.16 crore even though turnover was lower at Rs 304.36 crore. Estimates indicate that as a result of the revision in concessions, the company has actuallyclocked a net profit of Rs 16.40 crore for the first half of the year.

With contributions from Manish Saxena, Percy Dubash and Sarad Saraf