However, the actual figure is expected to be Rs 100 crore. This is the second company in which CG's stake is being acquired - the other being CG Elsag Bailey in which ABB bought out CG.

The amount invested by CG in Skycell - Rs 25.2 crore is not material in relation to its balance-sheet size. However, the post-tax profit will contribute significantly to a reduction of the interest burden as cash will logically be used to repay debt. CG's interest cover, as on March 1999, was barely two. The company's order book includes projects which have notachieved financial closure. Although in the case of Sujana Power Project, achieving financial closure is almost a formality, it has not been achieved yet.

The operating margin of the company's power division is the highest and at the beginning of the year, its order book was just Rs 301.43 crore (Rs 477.11 crore) and Sujana Power Project which accounted for 34 per cent of the order book and 65 per cent of the order book of the industrial division will not contribute anything to the bottomline in the current year nor contribute anything significant at least till the last quarter of the next year.

The process of demerger should be complete latest by the end of the third quarter of the next financial year. By then, the debt-equity position will be better resulting in lower interest outgo and the company will also be able to book profit from the Sujana project. The attraction of owning the shares in the company formed because of the demerger of P&I division should prevent the stock from declining irrespectiveof the results and lower than expected profit on sale of stake in Skycell.

Refinery stocks
Refinery sector stocks have been one of the main performers in the recent rally. Almost all stocks in the sector have participated in the rally. Many theories have been floating around regarding the move in these counters. One of them is the possibility of a cut in import duty in crude oil. Though not everyone is hopeful on this move, some say that the Government might partly reduce the duty in the current winter session and the remaining in the budget to be in line with the Nirmal committee recommendation. A reduction in import duty will help improve refining margins for the companies.

The other reason cited by analysts is the possibility of an increase in prices of subsidised products like kerosene and LPG. The recent jump in international prices of these commodities and the high level of crude oil prices have caused a dent in refining companies profitability. Higher prices of the raw material as well asinternational prices would mean high level of subsidy, which, in turn, means a further deterioration of the oil pool account, thus a further delay in the redemption of oil bonds. Thus, a hike in prices of these commodities would help improve the scenario. Refineries would like a hike in prices of these subsidised products, in light of the fact that some of the refineries have temporarily shut down their motor spirit unit. Motor spirit cross-subsidises the oil pool account.

The other factor that seems to be affecting the stocks movement is the Government decision to deregulate the sector before the deadline of 2002. Also the Centre's decision to go divest its stake through an open offer route is boosting sentiments in the counters.

Indian Airlines
A double whammy for Indian Airlines is perhaps the best way to explain the two new developments which might affect the carriers interim prospects. Especially, after the domestic carrier looked set to turn the corner back into the black, with an expectednet profit of Rs 6 crore (last year the airline suffered a net loss of Rs 34.9 crore) for the first half.

The obvious references here are to the Government decision disallowing Indian Airlines to fly to Europe. Newsreports suggest that the civil aviation minister has barred Indian Airlines from flying to destinations like Frankfurt, Geneva and Rome, in Europe, from which Air-India had earlier withdrawn its services. Interestingly, the logic behind this decision is truly baffling, especially since post Air-India's withdrawal canabalisation of revenues and load shares would no longer have been an issue. Reiterating this point of view is the fact that Air-India's market shares and revenues from the Gulf sector have fallen following Indian Airlines expansion there.

Readers might remember that the basic problem with both the air carriers, was the fact that instead of completing each other, it is the replication of feeder routes and infrastructure which led to competition and a downturn in fortunes for boththe airlines. But in the case of the European sector, this problem would have been a non-issue.

Another problem that faces Indian Airlines is the 18,000 applications that it has received for free tickets on its international route. These incidentally, are the claims from passengers arising out of a promotional exercise that the airline had run to increase load factors on the domestic routes during the off-season. The airline had reportedly offered one international free ticket for every seven domestic return flights undertaken between July and September. Newsreports suggest that a large majority of the free claimants want to fly lucrative routes such as the Gulf, Sharjah and Kuala Lumpur. This, state industry analysts, could definitely affect revenues in the interim, given the high volume of non-revenue passengers.

All of which points to the fact that the airline, will have to further tighten its belt with self induced cost savings. IA had reportedly effected savings of nearly Rs 4.5 crore in materialconsumption, while stringent control over staff costs has resulted in savings worth Rs 3.8 crore. Rationalisation of the food services had also saved the airline an additional Rs 2.6 crore.

These problems aside, there is the huge list of problems that continue to plague the company. Top on that list is the airline ailing aircraft fleet, which urgently needs replacement. Burgeoning fixed costs such as landing fees, fuel surcharge and inflight services, will also only erode the company's profitability. Additionally, with the government, now towing its privatisation line for both IA and AI, the airline will have to bank on improved efficiency and productivity to buoy earnings.

Emcee (with contributions from Urmik Chhaya, Shishir Asthana and Percy Dubash)