The saga of financial trouble surrounding the Pentafour group which surfaced last year has taken another step with an injunction being passed against the vice-chairman and MD of Pentafour Products, by the Debts Recovery Tribunal, restraining him from transferring, dealing, pledging and alienating shares held by him in the company and in other group companies. There was bound to be a negative impact in the stock market, especially in the group's flagship company, Pentafour Software which is also the cash cow. The stock attracted a lot of sellers early in the day and in sympathy, even Satyam Computers was subdued for much of the day.However, reality is a little different, and several market players feel that the selling in Pentafour Software was more a knee-jerk reaction to the situation than a meaningful signal of worse things to come. While an injunction may have been passed, it has been passed against the promoter and not the company. The injunction in no way hampers the normal operations of the company in any way. Besides, the injuction could be easily vacated.
Market players were even more sceptical over the fall in Satyam Computers, considering that the fall was in sympathy with Pentafour. Brokers and traders were of the opinion that the fall in both these stocks made for a very good opportunity to make an entry.
Kirloskar Pneumatic
Ever since the management first communicated its desire to restructure the operations of Kirloskar Pneumatic, the stock has been racing. It doubled in a matter of one month to Rs 14, emerging from a 10 year low. The restructuring effort is based on turning around the operations which have deteriorated drastically during 1998-99. The net loss had widened from Rs 4 crore in 1997-98 to Rs 17.5 crore in 1998-99. A group company, Kirloskar Oil Engines is also in the midst of pulling off a restructuring effort, which is basically concentrated around the disposal of its investments.
Debt is a problem area for KPL and interest costs absorb almost two thirds of KPL's operating profit. And KPL is also in a fortunate position as its affiliate company is having a large investment portfolio to sell and liquidate this huge pile of debt. Even last year, the company was borrowing from the financial institutions at 19 per cent.
The only problem with KPL's investment is that the bulk of it is equity investments (with a book value of Rs 35 crore) which is concentrated in a few group or subsidary companies, which it is unlikely to disturb. KPL is, therefore, concentrating on the restructuring of its manufacturing assets and through cost-cutting. The intention is to try and reduce overheads as far as possible. To that end, the company is seeking to lease out the air compressor plant. In addition, it is seeking to sell off the railway equipment business of the transmission division. Another bit of good news was the settlement of the pending excise claim against the company. Against a likely liability of Rs 29 crore, the company now has a liability of just Rs 7 crore.
Copyright © 1999 Indian Express Newspapers (Bombay) Ltd.