Correcting CAR

IFCI: Slowdown may make restructuring task difficult

IFCI has witnessed a negative interest spread for the first time during the quarter to September 2001. Its interest earned at Rs 438.7 crore was less than the interest spent of Rs 599.8 crore.

The negative interest spread implies that the institution has been using the funds borrowed for shoring up CAR to meet its operating expenses. IFCI’s CAR of 6.2 per cent as on March 2001 was way below the stipulated minimum of 9 per cent by the RBI. The Government has recently infused Rs 400 crore in the form of convertible debentures as Tier I capital. Even if LIC contributes Rs 200 crore as agreed, the CAR might still fall short of the minimum requirement.

IFCI’s problems were further compounded by a massive jump in provisions and write off from Rs 49 crore to Rs 226 crore. A high level of project financing (that involves a long gestation period) and poor appraisal standards have worsened NPA level. Provisions and write off are expected to escalate in view of the institution’s efforts to clean up the balance sheet. IFCI’s bottomline turned red with a loss of Rs 413.7 crore as against the small profit of Rs 14.6 crore.

During the next two years, IFCI wants to address two most pressing problems viz. reducing the asset-liability mismatch and completion of the committed projects, which were sanctioned assistance in the mid-1990s. However, there are no signs of reversal of the ongoing slowdown, which could make the institution’s restructuring task difficult. Other projects in the pipeline, particularly those in steel and power sectors, are expected to go on stream in the next two years. A steady fall in book value to Rs 14 in FY 2000-01 from Rs 42 in FY 1995-96 epitomises the story of India’s first development finance institution. No wonder the scrip is currently hovering around Rs 4.

E Merck
The continuing slack demand in vitamins has adversely affected the performance of the pharma division of E Merck during the quarter to Septemeber 2001.

The company’s product profile is heavily inclined towards vitamins, which contribute 68 per cent of pharma sales. Sales grew 9 per cent to Rs 94.5 crore owing to a better performance from non-pharma sales that account for 40 per cent of total sales. These mainly consist of chemicals, lab reagents, pigments and laboratory products. Cost control on expenses boosted the operating profit by 18 per cent to Rs 22.17 crore and OPM increased from 21.61 per cent to 23.48 per cent.

E Merck’s vitamin segment has been hit by low demand besides DPCO price control. It enjoys a 19 per cent market share in the vitamin segment and has three major brands “Evion”, “Polybion” and “Neurobion” that account for an annual turnover of Rs 120 crore. The worldover, vitamin segment has been hit by low demand, excess capacity, dumping by China and shrinkage of segment.

E Merck has therefore, tried to diversify into cardiology, dermatology and antibiotics. It bought “Livogen” from Glaxo for Rs 9 crore. Recently, it entered into a strategic co-marketing tie up with Kopran Ltd. for two products in anti-inflammatory and anti-cholestrol segment. During the current year, E Merck launched “Precitol” in diabetic segment. It has already introduced 5 products during the year and will further introduce 5 more products before the end of the year. As for non-pharma operations, the company expect a promising demand growth in pigments and manufacturing facilities in India have been planned that would act as a global sourcing point.

The company implemented SAP at the cost of Rs 3.6 crore during the current year. The company also carried out process re-engineering which will save Rs 6 to 10 crore in net working capital. E Merck does not derive any significant help from its parent company and is not likely to introduce new patent product until patent act is through. The future is not exciting enough to attract investors unless DPCO price control is removed as about 60 per cent of its pharma sales is covered under DPCO.

— Manish Joshi & Dhruv Rathi