Last year all JFTC and fibre optic cable suppliers (including the smaller non-listed ones) benefitted from large orders from the Department of Telecom (DoT) and the Indian railways. Sterlite was a big beneficiary last year as orders also came in from the eight new telecom circles that were being made operational. This resulted in a five-fold increase in Sterlite's fibre optic cables business and a 75 per centincrease in its JFTC business. This more than offset the setback to its copper smelter. It is being anticipated that at least another four to six new telecom circles will become operational this year. Bids are also likely to be opened for additional telecom circles probably after the new telecom policy is announced (June 1999 is the deadline for the policy), which will also yield substantial business for these companies.

Despite the emergence of the new telecom circles, 95 per cent of the business for telecom cables still comes from DoT and MTNL. Independent business is expected to grow by 20 per cent for the next couple of years, without including demand from private telecom players.

There is another good news for Sterlite Industries. The Madras High Court has re-allowed operations at the company's Tuticorin smelter, so the negative sentiment should lift to that extent. Even though the order of the decision of the ministry of finance has gone against Sterlite in the Indal case, it has ordered the releaseof a large chunk of the escrow account amounting to Rs 67 crore back to Sterlite, which should boost its cash flows. The stock hit the upper circuit filter on Wednesday as the re-rating of the stock in line with the other telecom cable stocks has finally begun.

Ramco Industries: Restructuring benefits

Separating the software division is a very good move and reflects a keenness of the management to improve valuations. Ramco Industries had the unique distinction of the being the only company in the country whose valuations were negatively affected by its software business. The stock had fallen to an all time low of Rs 339 in response to rising accumulated losses from its software division. The losses were spread out over its two international subsidiaries, based in the USA and Switzerland. A consolidation of accounts of the holding company and subsidiaries revealed the gaping hole. The total of losses of the subsidiaries was greater than the profits of all its other divisions put together.

Thetransfer of the software business to a wholly owned subsidiary is being seen as a precursor to inviting bids for a sale of a portion of that subsidiaries shares. Something like what BFL Software, Fujitsu ICIM or even what IIS Infotech did. The only difference is that in Ramco's case there would not be a sale to a strategic investor in the nature of a investment bank, but rather to an international software player. The company has developed an advanced ERP package sinking Rs 100 crore in the process, its annual recurring R&D expenditure is roughly Rs 20 crore. The business requires infusion of both cash as well as expertise for which the equity participation from a global software company would be an advantage. This need for expertise by Indian ERP companies is highlighted in a NASSCOM document titled "Software Industry in India, a Strategic Review", where it has been suggested that Indian software houses should enter into alliances with global ERP majors to develop applications that complement or build ontheir existing portfolios.

The spin-off of the software division could be the last ray of hope for Ramco, which is also facing a difficult time in its other businesses namely asbestos cement sheets and cement. In addition, to improving valuations the extra-ordinary cash flow from partial sale of stake in the software subsidiary will be timely.