On a yearly basis, sales grew at 8.64 per cent to Rs 3,819.17 crore compared to Rs 3,515.38 crore in the previous year. The bottom line at Rs 792.44 crore is inflated by an amount of Rs 55.12 crore, which is an excess provision for tax relating to the previous year being written back this year. Adjusting for this entry, the company's earnings for the year stood at Rs 737.32 crore, which is 18.27 per cent higher than the previous year's earnings of Rs 623.42 crore. Thus, ITC's results have actually been a negative earnings surprise considering that analysts were expecting an earnings growth of 20 per cent or a bottomline of Rs 750 crore.

However, the company worked on excellent margins of 35.18 per cent (30.5 per cent) this year, owing to cost-cutting and more importantly the increased focus on high-end products. This is a result of the company's investments towards the upgradation and modernisation of its manufacturing and products development facilities during the last few years. As a consequence, the internationally preferred "hinged lid" form of packaging now constitutes a more significant portion of the company's production. These constituted over 22 per cent of production last year, against a meagre 2.4 per cent in 1996.

Also, filter cigarettes now constitute a high proportion of over 70 per cent of the product portfolio, thereby aiding the company to work on improved margins. Interestingly, OPM has come down considerably in the second half of the year. OPM was only 31.6 per cent in the fourth quarter compared to 38 per cent in the first half.

The company has also managed to curb its expenditure related to debt servicing. Interest costs have come down by over 26 per cent to Rs 112.55 crore. The company has provided for taxation at a considerably higher rate this year. While in the previous year, the provision was around 33 per cent of PBT, this year it is in excess of 40 per cent.

In conclusion, the company has done well considering the adverse developments in the cigarette industry since 1998. Higher excise levies and an increased inflow of smuggled cigarettes have hit sales. In fact, cigarette sales saw a negative growth of 2 per cent in the year ended 1999. This year's budjet again saw an increase of 5 per cent in excise duties on cigarattes. However, the inclusion of cigarette companies for the first time under the MODVAT scheme will bode well for the company.

Public sector bank IPOs
IPOs of Andhra Bank, Indian Overseas Bank and Vijaya Bank are slated to hit the markets soon despite the u-turn in the fortunes of the once booming primary markets. The total mobilisation for the month of April stood at Rs 75 crore compared to a staggering Rs 2,000 crore raised in the month of February! This seems to be in line with the trend prevailing in the major international markets today, where a majority of IPOs have either been cancelled or postponed for the time being.

As if the bureaucratic tangles and policy hitches were not enough, the public sector banks have to contend with sheer bad luck also, given the abrupt end of the party at the primary markets. Although the banks had got the hint to raise capital from the markets by the finance minister a couple of months ago, proposed amendments to the Banking Act and other procedural hiccups have delayed the debut of the issues.

In the meanwhile, fortunes at the markets have changed for the worse for the already beleagured banks. The official line for the foray in the markets is that it would help recapitalise the banks and at the same time, would ensure a wider investor base. However, the reality is that the government has expressed its inability to infuse further capital and the banks must shore up their capital to risk weighted asset ratio (CRAR).

What makes matters worse for these issues is that these banks have had less than satisfactory financial performance in the past couple of years. The Verma committee set up by the RBI to identify weak banks had identified weak banks and had also mentioned eight banks where the net accumulated losses and net NPAs exceeded the net worth of the bank. The Indian Overseas Bank is one of them. For the year ended March 1999, the bank's net profit had dipped by 51 per cent over the previous year and the NPAs were 7.3 per cent.

Although Vijaya Bank has been making profits for the last couple of years, it had accumulated losses of Rs 400 crore before that and the government had allowed a write off of Rs 290 crore against a capital of Rs 550 crore. This had led to a reduction in the capital base. Despite an improved showing in the current fiscal, the bank is struggling with its NPAs.

Andhra Bank, on the other hand, has had to contend with a serious set back in its credit card business which is in the process of a complete overhaul presently. The bank has a substantial presence in this business having a turnover of Rs 600 crore and 80,000 cards. It has shown a satisfactory performance otherwise.

The most crucial aspect for these issues now is - pricing, which must be in accordance with the prevailing market conditions. However, even the merchant bankers and the co-managers of the proposed issues do not seem confident enough of the issues sailing through despite a par issue. At the same time it would be interesting to note that a few other public sector banks with their primary issues in pipeline, are still adamantly hopeful of a substantial premium!

Corrigendum
This column stated on Wednesday, May 17 that Indo Rama Synthetics had raised most of its debt for the PTA project, which never took off. The company has clarified, ``the funds for the PTA project are yet to be tied-up in spite of in-principle approval from the financiers, as the site for the project has not been finalised.'' We regret the error.

KSESH (with contributions from Mobis Philipose and Sachchidanand Shukla)