Defence Determined

Updated: Jul 26 2002, 05:30am hrs
Bharat Electronics (BEL), a PSU, has done well during the quarter to June 2002. A good growth in demand from the defence sector and better management of working capital has made this possible. The company has recorded 75 per cent jump in topline to Rs 304.4 crore. Yet, the growth in operating cost in tandem with sales has restricted the rise in bottomline to Rs 25.5 crore, up 12 per cent. Consequently, its profitability has remained almost flat.

The huge order book position, up 34 per cent to Rs 4,000 as of March 2001 and 40 per cent as of September 2001, was instrumental in the growth of sales. Apparently, this has also led to a 77.6 per cent rise in operating expenses to Rs 253.2 crore. Raw material expenses grew by 69.2 per cent to Rs 185.7 crore, staff cost was up 7.7 per cent to Rs 77 crore, while other expenses grew by 67 per cent to Rs 36.1 crore.

Despite registering 14.4 per cent increase in operating profit to Rs 35.4 crore, BEL’s OPM eased to 12.3 per cent (12.8 per cent). This was mainly due to a substantial increase in the share of raw material (after stock adjustment) in sales at 48.5 per cent (30 per cent). The share of staff cost in sales has declined to 26.7 per cent (43.7 per cent), while that of other expenses was lower at 12.5 per cent (13.2 per cent).

BEL has been working on bringing down the overall borrowing cost for quite some time now. It has employed better working capital management policies. The effort has resulted in capping interest outgo, almost at previous levels, at Rs 4.9 crore. Depreciation provisioning was marginally up 0.6 per cent to Rs 12.6 crore. The company has made a tax provision at Rs 8.2 crore. BEL has recently acquired operational status of ‘Mini Ratna Category-I’.

The ‘Mini Ratna’ status allows it a certain amount of autonomy with regard to capital expenditure, establishing joint venture companies, entering into Transfer of Technology (ToT) agreements and implementation of schemes relating to human resources management etc.BEL designs, develops and manufactures state-of- the-art products in the field of Radars, Defence Communications, Telecommunications, Sound and Vision Broadcasting, Opto-electronics, Solar systems, IT products and Electronic components. These systems are supplied and commissioned on a turnkey basis.

Lower price realisations have not deterred the cement major, ACC, from increasing its operating income by six per cent to Rs 881 crore during the quarter to June 2002. Higher volumes, of course, helped the growth as 36.34 lakh tonne ( 29.72 lakh tonne) of cement sold, up 22 per cement.

The company’s better capacity utilisation at 81 per cent during the year to March 2002, made possible higher despatches of the commodity. But the growth in volumes was accompanied by a 14 per cent rise in operating cost to Rs 786 crore. As a result, operating profit slid by 31 per cent to Rs 104 crore. Low price realisation was, of course, the major bane. Higher depreciation cost at Rs 41 crore resulting from the commissioning of a new plant at Wadi has been set off against an eight per cent reduction in interest cost to Rs 34 crore. ACC replaced its high cost debt by low cost one, made possible by the low interest regime. As a result the average cost of funds fell to around nine per cent.

The Wadi plant with a 2.6 million tonne capacity per annum set up at a cost of Rs 485 commenced commercial production on 1 October 2001. With this, ACC’s total installed capacity of cement including that of its subsidiary Damodhar Cement & Slag Ltd now stands at 16.1 million tonnes. In tune with operating profit, net profit also was down 55 per cent to Rs 20 crore. Uncertainty caused by the delayed monsoon with an adverse fallout on demand for cement ovrhangs the company in the near future. Particularly cement offtake from two major user segments, construction and rural housing may fall in the current year. The low price realisation worsened by slugish demand for cement does not spell good for cement companies, including ACC. Cement industry watchers fear that cement prices currently hovering around Rs 145 per bag may slip by another Rs 10 to Rs 135 per bag. That puts a big question mark over ACC’s ability to sustain in the future.

Laxmikant Khanvilkar & Prashant Kothari