Still Twinkling

Updated: Jul 31 2002, 05:30am hrs
Blue Star (BSL), market leader in central air-conditioners (CAC) with a 32 per cent market share and commercial refrigerators, has managed a satisfactory showing during the quarter to June 2002. Better working capital management and repayment of debt helped it to bring down interest outgo. Consequently, despite a meagre 4.8 per cent rise in topline at Rs 114.6 crore, its bottomline (net of extraordinary items) grew by 15.8 per cent to Rs 2.4 crore. However, a rise in operating expenses pressurised OPM.

Heavy reliance on the ‘big clientele’ that has been BSL’s forte has backfired this time around as these clients have resorted to cost cutting measures in the wake of economic slowdown.

Moreover, CAC segment witnessed sluggishness in demand. Also, as the company was unable to pass on the increase in raw material costs its realisations dipped. OPM fell 5.1 per cent (6.6 per cent) as operating expenses increased by 6.8 per cent to Rs 108.5 crore. Raw material cost and other expenses rose 18.1 per cent and 13.5 respectively contributing to the rise in operational expenses. Staff cost dipped 5.4 per cent to Rs 11.8 crore owing to the VRS offered by it. Yet, with reduced interest outgo, down 71 per cent to Rs 47 lakh, and 25 per cent drop in depreciation provisioning to Rs 2.36 crore cushioned profits. BSL has bought back 15.9 lakh of its own shares from the open market as a result, equity capital stands reduced to Rs 18.7 crore. The company envisages buying back up to 25 per cent of its equity under the buyback programme. The successful buy back program will result in promoters stake crossing 51 per cent mark.

BSL also boasts of strong presence in water coolers, deep freezers and cold storages with 42 per cent, 55 per cent and 31 per cent market share respectively. It is now exploring the possibility of targeting small and light commercial segment. The company is aiming for higher revenues from this segment and expects as much as 30 per cent to its turnover in 2002-03.

IDBI’s agony continues as evident from its poor showing during the quarter to June 2002. Even as it is trying hard to cut down on interest as well as operational costs, its income from operations has dipped by Rs 492 crore at Rs 1,665 crore. Bottomline too, fell by Rs 182 crore at Rs 38 crore.

The industrial slowdown, lack of green field projects and increased disintermediation has exacerbated IDBI’s problems leading to stunted growth. IDBI has in the recent past excercised call options on high cost borrowings and prepayed borrowings so as to save on interest cost. The trend continues as interest expenses have dipped by 10 per cent at Rs 1,442 crore. Yet, interest expenses as a percentage to operational income went up by 12 percentage points to 86 per cent as a result of fall in the operational income. Operating profit plunged by 64 per cent at Rs 188 crore. Even a 67 per cent drop in provisioning to Rs 97 crore (Rs 267 crore) could not prevent net profit falling by nearly 80 per cent.

IDBI’s returns have been on the decline while average cost has been going up, resulting in shrinkage of margin. Iits average cost has risen steadily at 9.2 per cent in 2001-02 from 8.7 per cent in 1997-98. While, returns have dropped to 10.4 per cent from 12.6 per cent. This has resulted in a continuos decline in the margin at 1.2 per cent from 3.9 per cent during the same period. Margin is expected to remain under pressure owing to declining interest rates and intensifying competition.

High exposure to commodity and cyclical industries has proved to be IDBI’s bane. Thus, it is to focus on non-project loans. Moreover, a few sectors such as cotton and textiles besides steel have shown promise igniting IDBI’s hopes of some respite. Yet, IDBI’s future growth hinges on industrial turnaround and increased recoveries.

With given constraints, unless there is a significant turnaround in the economy IDBI’s woes are likely to continue with or without any move towards corporatisation and changes in the IDBI Act.

Laxmikant Khanvilkar & Sachchidanand Shukla