Restructuring spin-off

Alstom: Order book position secures future

IN its third year of operation, Alstom Power India (Alstom), born after the merger between ABB’s power equipment division and GEC Alstom, made a remarkable comeback despite gloomy power scenario. A three-fold surge in topline helped Alstom to return to the black for the quarter to June 2001. Alstom reported a net profit of Rs 8.11 crore (net loss of Rs 1.08 crore) on a turnover of Rs 187 crore, up 315 per cent. However, the company continues to operate on a very thin margin.

Alstom’s restructuring process lately has had favourable impact on its operations. Although, operating costs rose sharply in line with increase in topline, the company has managed to optimise its cost efficiency. As a result, the share of staff cost in operating cost has declined drastically to 4.6 per cent from 12.1 per cent despite a rise of 49 per cent increase in absolute terms. Similarly, other expenses account for 7.2 per cent of operating cost down from 22.6 per cent despite a 32 per cent rise.

Alstom is the only company in the power generation industry that provides the complete range of products and services. Its line of business is mainly divided into six sectors in India encompassing segments such as gas, steam, hydro, services, environment and boilers. The company has a workforce of about 2,000, three manufacturing facilities, four customer service centres and five sales centres.

Alstom derives most of its revenue from turnkey power projects that account for about 55-60 per cent, followed by steam turbine, heavy duty engines, industrial gas turbine, generators, boilers, hydro, control systems and environment. The company has been targeting smaller power projects in the range of 110 kv with an intention to carve a niche in this segment.

Alstom’s future prospects are directly linked to the country’s power sector. Though there is uncertainty on the power front, the company has sizeable order backlog of Rs 994 crore as on 31st March 2001. This should enable the company to maintain its performance for the next two - three years.
Rolta India

Like its rivals in the industry, Rolta has also witnessed a fall in its operating income for the quarter to June, 2001. The operating income stood at Rs 77 crore, down four per cent from Rs 80 crore in the quarter to March, 2001.

Rolta has five major business segments, namely, geospatial technology for automated mapping and facilities management, engineering solutions for plant design automation, mechanical design automation and collaborative product commerce, value-added Internet services, and eBusiness solutions and services.

As the company derives around 70 per cent of its revenue from the domestic markets, it is relatively shielded from the US economy slowdown. However, dependence on Government-owned organisations, the company’s major clients, is fraught with risks as most of them have embarked on a cost cutting exercise.

This is reflected in the operating income declining in the quarter to June, 2001. In fact the turnover in the last three quarters had remained almost remained stagnant at Rs 80 crore. However, the company has kept a strict control on its costs.

Operating costs at Rs 31 crore, was down 17 per cent in the quarter to June 2001 over the quarter to March, 2001. As a result, operating profit went up 6.6 per cent to Rs 46 crore and the margin improved from 54 per cent to 60 per cent. However, many analysts are baffled by such high operating margins which even the industry leaders do not enjoy.

While there has been an improvement in operating profit, net profit has fallen 2.5 per cent to Rs 30 crore due to higher depreciation costs (Rs 10 crore). Net profit excludes tax since the company has not made a provision for the same.

It is difficult to indulge in crystal-gazing, as far as Rolta’s operating income is concerned. This is because of the dominance of Government-owned organisations in its client portfolio. However, bottomline may look up on a strict cost control by the company.

Laxmikant Khanvilkar & Prashant Kothari