On track

Punjab Tractors: Outperforming industry in tough times

Manish Joshi & Dhruv Rathi

Punjab Tractors (PTL) has once again outperformed the tractor industry during the quarter to September 2001 owing to strong R&D and good product portfolio.

Despite marginal fall in topline and flat bottomline, one could anticipate at least 10 per cent better performance during the second half of the fiscal vis-a-vis first half.

This estimate is obviously based on the premise that historically the second half, which is the crop season, has been better for the company. Normal monsoon also has made the picture look rosy.
Operating revenue declined by a meagre 3.3 per cent to Rs 238.5 crore.

A sharper fall was avoided because PTL changed its product mix in favour of high-horsepower (HP) for better price realisations, when volume growth was difficult to come by.

Raw material consumption of Rs 159.2 crore (adjusted for variations in stock), fell to 66.8 (67.7) as a percentage of sales. Increase in personnel cost and decrease in other expenditure by an identical amount cancelled each other. Operating profit dipped by around one per cent to Rs 47.2 crore, but OPM improved to 19.8 per cent (19.3 per cent).

Bottomline would have been better than what it looks with dividend income of Rs 3.7 crore (Rs 0.9 crore).

However, the effect of higher ‘other income’ was nullified by a very rare interest outgo of Rs 2.3 crore for the cash rich company.

Normally, interest has been an income stream for PTL. This has happened due to increase in working capital requirement, that in turn may be attributed to a higher rise in debtors’ collection period compared to the rise creditors’ payment period (as per annual report of 2000-2001).

Debtors’ collection period shot up to 97 days from 28 days, if one takes into account annual sales and the figure of closing debtors. Creditors’ payment period too went up to 65 days (14 days), based on annual purchases and closing creditors.

It is observed that PTL has been paying a high average rate of income tax.

The company’s tax/ PBT ratio has been around 30 per cent, which is close to maximum corporate tax rate of 35 per cent.

After the tax provision of Rs 13.3 crore, net profit grew 0.3 per cent to Rs 31 crore.

Tolani Bulk Carriers
Tolani bulk carriers (TBCL) has made an open offer for acquiring the balance 31.01 per cent equity capital held by public shareholders.
The offer price is at par value of Rs 10 each. It is 66 per cent higher than its average market price of Rs 6 during last six months.

However, lately the price moved up to Rs 9.50 to encash the price difference. The promoters may consolidate total shipping business alongwith its group company- Tolani Shipping Company Limited, the acquirer of the bulk carriers business.

The business cycle of shipping industry has shortened from four years to two years. That had resulted into low earning per share, as reported by highly capital intensive bulk carriers.

In the boom year to March 2001, TBCL earned only Rs 2.85 per share. The bulk carrier business suffers from the risk of war situation, slowdown in scrapping of ships thus leading to high supply position and sluggish demand for commodities in the Asia-Pacific route.

The average earning per day of bulk carrier handymax (less than 50,000 tonnage) is around half of the tanker’s rate.

Handymax’s average earning is around $6,000 per day and it can not cover operating cost, commission, interest and depreciation. TBCL has only two bulk carriers. The company finds it even more difficult to meet large overheads.

The shareholders also have an opportunity to get out of the TBCL stock before de-listing. As per Sebi rules, TBCL can de-list if the promoters’s stake exceeds 90 per cent.

Presently the promoters’ stake is around 69 per cent in the equity capital of Rs 24 crore.

Financial institutions and public hold around 4.17 per cent and 25.68 per cent respectively. The offer opened on October 8 and closes on November 6, 2001.