The new-found success in the retailing business appears to be the motivating factor behind Pantaloon Fashion's decision to put on sale its `John Miller' brand. Launched in 1995 on the platform ``the shirt inspired by America,'' the brand has become immensely popular and contributes around 15 per cent of the company's total revenues. For the year ended June 1998, the brand achieved a net sales figure of Rs 13 crore. Reports indicate that the brand is valued at around Rs 18 crore and the proceeds from the sale would be used for the expansion of the company's retail network. Only recently, it raised Rs 3 crore for the purpose through a debenture issue.

The company has a small equity base of about Rs 7 crore and its networth is around Rs 15 crore. Unfortunately, its general manager (finance) Shiraj Tej was unable to provide the total debt figures. But industry sources say that the company's gearing is on the higher side. Therefore, it is only logical that the company would notconsider raising further debt. It has, however, been considering an equity issue to a strategic investor but does not appear to have made any headway in this regard. There have only been speculations regarding the possibility of Jardine Flemming picking up stake in the company at Rs 45 per share. The shift from garments manufacturing and marketing to running a chain of self-service family stores should make the company an attractive investment destination.

The `Pantaloon' brand which was associated only with men's garments has now been extended to ladies as well as kids wear. With this, the company has made an entry into the relatively less competitive markets. While it is true that the new businesses are currently less remunerative as these are still widely occupied by unbranded products, an early entry into these areas is likely to result in greater brand franchise. Traditionally, the company's retail presence has been in the form of small franchisee outlets hawking a limited range of menswear. Whilethese still continue to operate, a number of mega family stores have been put up by the company in cities like Chennai, Pune, Hyderabad, Calcutta and Bangalore.

The south-based mega stores have been attracting good business and in Hyderabad, the company has had to expand to four such stores to cater to the burgeoning demand. Logistics is one of the key success factors for any retail chain and the company appears to be preparing itself to handle this better through ERP. It has been promoting its `Pantaloons' retail stores on the platform `where India shops for value' and the promotion appears to be doing extremely well. As a retail chain, Pantaloon Fashions would do well to nurture a single strong brand rather than promote multiple brands. If it is able to sell its `John Miller' brand at an attractive price, one can expect `Bare' to go on sale, next.

Tisco

News reports indicate that the Bihar Government has asked for huge renewal fees for the 15,000 acres of land in and around Jamshedpur beingused by Tisco. The government has asked for a lease payment of Rs 35 lakh per acre per annum, meaning that the company might have to shell out an additional Rs 5,250 crore -- close to the turnover of the company itself. Tisco would be better off if it closes down the plant and moves elsewhere rather than pay such an amount. But analysts seem to believe that Tisco has a solid case and the Bihar Government can do little about it.

Althougth Tisco has so far not confirmed or denied the report, industry observers feel that Rs 35 lakh per acre is not the actual figure demanded by the Bihar Government. The actual figure may be in the range of Rs 2,000 to Rs 5,000 per acre along with an upfront payment for lease renewal. This would be at least 10-25 times the present rates paid by Tisco. Presently, lease charges are Rs 200 per acre. The contract provides upto 100 per cent increase in the lease rentals at the time of renewals. Hence the maximum amount that Tisco ought to pay would be only Rs 0.6 crore, which wouldnot have any significant effect on the bottomline.

The problem is that unlike lease renewals for coal mines, which is done once in 99 years, lease renewal for land in Jamesdpur is done once every 20 years. Hence, such decisions by the government subject the earnings of the company to another risk factor - lease charges. The Bihar Government may amend laws relating to renewals of contract for leased land and demand higher lease rentals from Tisco. But investors need not be unduly worried about the emergence of this new risk factor.

In case the government resorts to amend its laws, the company would be left with little option, but to fight the case in court. If the past is any indication, then in a similar situation, the company got a favorable judgement from the high court. At that time, the Bihar Government had unilaterally increased the royalty payments for coal mining at the time of renewal of lease. However, the company did not agree to the Government's position and went to the court, which overruledthe extra charges put by the Government.

Creative Accounting

It is well-known that by taking cover of the Banking Regulation Act, banks manage to get away by disclosing the most sketchy details. Also, remarkable steps are taken to camouflage NPAs. It is no surprise that nationalised banks go to great lengths to show lower NPA figures. One nationalised bank has gone to such an extent that ICAI has had to advice the bank auditors to qualify the treatment. RBI guidelines require that an advance has to be classified as an NPA if either the principal or interest remains unpaid for two quarters. However, advances against Kisan Vikas Patra (KVP), Indira Vikas Patra (IVP), National Savings Cerificates (NSC) and term deposits are exempt (the list of securities is not exhaustive).

The nationalised bank advised its branches to treat advances against shares at par with advances against KVP. In other words, not to treat it as NPA. Alarmed by the innovative developement, ICAI advised (also through its journal,The Chartered Accountant) to qualify any such treatment. ICAI has also clarified that AS 11 (Effects of Changes in Foreign Exchange Rates) does not apply to forex transactions entered into by authorised FE dealers. All banks are authorised FE dealers. The standard will however be applicable for translation of financial statements of foreign branches of forex dealers.

Emcee (with contributions from Sarad Saraf, Manish Saxena & Urmik Chhaya)