The performance and the financial risk underscores the importance of the company selling off its non-woollen textile assets; which include both its steel and cement business. The steel business does not contribute to earnings but carries a large chunk of the interest burden.

The sentiment for the Raymond stock had turned bad due to both uncertainty over the sale of assets (an announcement is forever being expected) as well as uncertainty over the earnings. Further, the quality ofearnings is suspect. For the last financial year the profit was overstated by Rs 5.31 crore. This includes changes in the method of depreciation as well as amortisation of VRS expenditure instead of writing it off against revenue for the year. Traders feel that there will be similar adjustments in the current year as well. Unfortunately the figures with qualifications if any will be known only once the annual report for 1998-99 is released, late in 1999. The company has a credibility problem as far as its subsidiaries are concerned. Last year the auditors expressed concern over advances made to some of the subsidiaries. Raymond's extended Rs 50 crore worth of loans to Raymond Calitri Denim and and a further Rs 99 crore to Raymond Synthetics Ltd.

Further, traders also suspect that the stock is being shrewdly manipulated. For example until the day prior to the announcement of the third quarter results punters quoting management sources claimed that a loss would be announced. The pattern of trading givescredence to this view. The stock was hammered down to Rs 69 from Rs 92 prior to the result. But the stock picked up marginally after the result was announced, reporting an intra-day movement by 6.5 per cent.

L&T: Better fourth quarter

The performance of L&T in the third quarter of 1998-99 is not as exciting as it sounds. Excluding the profit on sale of a ship (which was reported in the second quarter of year), and other income, the PBT in the third quarter accounts for 32 per cent of cumulative profit for nine months of 1998-99.

The second quarter of 1998-99 and the third quarter of 1997-98 were exceptionally poor and hence comparison with the third quarter of 1998-99 does not make sense and is also the reason why the growth in percentage terms sounds impressive. As regards, cement, Tadpatri (a 2 million tonne plant) started commercial production in the third quarter of the year and considering the prices prevailing in south, must have posted a loss. In Gujarat, because of the second unit whichwas commissioned in the second half of year, the situation cannot be materially different. The commercial production of both the units started at the worst possible time. Production at Phase II of Gujarat started in the second quarter of 1998-99, the period during which prices in the region touched an eight-year low and 10-year low in October and November. Tadpatri went commercial and prices in the southern market declined by Rs 25-Rs 30 per bag. The performance of the division will be better in the last quarter because of a spurt in prices in Mumbai (from Rs 141 per bag in November to Rs 165 per bag in January) and better prices in Gujarat. Cement is a loss-making division for L&T and will remain so at least for the next two quarters.

L&T like any other EPC contractor follows the percentage completion of contract method of accounting for its revenues. Simply stated, the bulk of the profit is booked when the contract is nearing completion and as a result the fourth quarter is always the best quarter for anyEPC major. In 1997-98 (adjusting for profit on transfer of undertaking), profit in the last quarter accounted for 55 per cent of PBT for the year. During the third quarter of the current year, L&T has booked orders in excess of Rs 600 crore. The order backlog as on December 1998, at Rs 6,099 crore was higher by 8 per cent (period on period) and though like any other year, the fourth quarter will be the best quarter, because of the disastrous second quarter, profit excluding extraordinary income for 1998-99 will be lower by at least 15 per cent.