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Tata Investment Corporation Ltd.

BSE: 501301 Sector: Financials
NSE: TATAINVEST ISIN Code: INE672A01018
BSE LIVE 15:40 | 18 Dec 845.15 6.75
(0.81%)
OPEN

829.45

HIGH

851.00

LOW

824.00

NSE 15:29 | 18 Dec 841.35 1.95
(0.23%)
OPEN

841.50

HIGH

849.00

LOW

825.00

OPEN 829.45
PREVIOUS CLOSE 838.40
VOLUME 5617
52-Week high 954.60
52-Week low 544.00
P/E 23.35
Mkt Cap.(Rs cr) 4,657
Buy Price 0.00
Buy Qty 0.00
Sell Price 0.00
Sell Qty 0.00
OPEN 829.45
CLOSE 838.40
VOLUME 5617
52-Week high 954.60
52-Week low 544.00
P/E 23.35
Mkt Cap.(Rs cr) 4,657
Buy Price 0.00
Buy Qty 0.00
Sell Price 0.00
Sell Qty 0.00

Tata Investment Corporation Ltd. (TATAINVEST) - Chairman Speech

Company chairman speech

ANNUAL REPORT 2000-2001 TATA INVESTMENT CORPORATION LIMITED CHAIRMAN'S STATEMENT AT THE ANNUAL GENERAL MEETING Dear Shareholders, 1. May I begin where I should, viz, by extending to you a warm welcome on behalf of both myself and my colleagues on the Board of our Company. 2. One wishes one can write a poem about the year under retrospect. One cannot. Neither at the level of the overall economy nor in the operation of the stock market itself has there been any room for joy. At the broad economic level after nearly 13 years, it has happened that all the three major sectors of the economy took a simultaneous downward plunge, even the exalted Services Sector - in one year alone. No doubt, other macro economic factors have behaved well - interest rates have fallen, so has inflation, and foreign exchange reserves are rising. These are forces of strength and need to be noted even in an otherwise gloomy picture. 3. More specifically, the year in retrospect viz. 2000 - 2001 will go down in the history of the Indian stock markets as one of the most memorable and certainly one of the most depressing. * The BSE Sensex fell by nearly 28% in the fiscal year 2000- 2001 and indeed if the first quarter of this year is to be taken in consideration, it has fallen by 31%., wiping out nearly Rs. 6,20,000 crores of market capitalisation. More relevant in case, the BSE 100 index declined by 43% during the year 2000 - 2001. * The Indian stock market registered almost for the first time the most savage impact of globalisation - the feel good budget" introduced by our Finance Minister this year was wiped out by the collapse on the Nasdaq whose impact was transmitted faithfully and immediately to the Indian stock market, affecting most of all our Tech-Stocks which declined by as much as 80% to 90% in same cases. * Nonetheless all credit must be given to our Regulatory Authority for the courage shown in introducing several measures of reforms. In the most depressive year, it introduced more revolutionary reforms than ever before, as evidenced by the abolition of the Badla, the introduction of Options and of Stock Futures. * It is hardly surprising that the stock market has witnessed a revolt against the cult of Equity. There has been a flight from Equity to Debt instruments for, as the saying goes 'one just never knows what is the true bottom of the stock markets '. Financial analysts have gone wrong so continuously during the last year affirming or predicting the bottom that there has now emerged a crisis of credibility. Even the best run Mutual Funds have had to register the impact of the savage decline in the Equity market and predictably it is their Debt funds which are now in demand and not Equity-dominated funds. 4. Coming to our own Company, our Shareholders will be happy that in the midst of so much gloom-and-doom, we have thought it fit to repeat the dividend of 60%. We of course took a beating in the market capitalisation of our quoted shares - who didn't? But we repeatedly assured our shareholders that though we are not a high-profile financial organisation, our steady but rewarding policies of conservatism will continue to benefit our shareholders. Today, in the midst of the stock market debacle, our earnings per share have increased from over Rs. 18 to over Rs. 25 during the last two years. We know our shareholders will keep all this in mind when they ask us questions about our proposed Rights Issue of Zero Coupon Convertible Debentures of which more later. 5. Coming to the first quarter of this year, there has been (superficially!) a sharp decline in our profits compared to the quarter of last year. We should not come, hastily, to a sweeping conclusion about the decline in our profit in this quarter to nearly Rs. 9 crores from Rs. 25 crores of the previous quarter of the last year. We would ask our shareholders to recall that last year was a special year in which the major part of our annual income from dividends was received in the form of interim dividends declared by most companies in the first quarter to take advantage of the lower dividend tax rate. In the current year, however this rather abnormal phenomenon was not repeated and therefore most dividends would be received in the normal course during the second and the third quarter, as they did in previous years. We do expect, therefore that by the end of the second quarter, the position regarding our profits and hopefully our earnings for the six months ended September would catch up. 6. Much as we may be annoyed with foreign rating agencies for saying the same things about our economy that we are saying, we have to come face to face with the fact that several countries are taking a lead over us in several areas. We shall not even compare ourselves with China but illustratively the Foreign Direct Investment (FDI) flowing into India at 2.6 billion is not only way behind the 10 billion that we targetted 10 years ago - it is barely 30% more than what South Vietnam and Angola have secured a year ago. Again "Privatisation" is proceeding in our country, and all credit must be given to the Government that in the face of so much political opposition, it is pushing ahead with such programmes. But at the end of the day, despite great efforts, thins are simply not moving, or moving at a snail's pace. 7. The truth is that our financial system is under great strains not only because of the much-publicised scams but, even more importantly, because of the financial position of the Indian Corporate sector. The small-scale sector is reeling under the impact of competition; the medium and large scale sectors, despite great leaps in productivity in recent years, are unable to withstand the impact of over-capacity, over-crowding and over- manning. In a few cases, this is transmitting huge losses not only on the Companies but on the financial system. 8. What does one think when five steel units of our country register a loss of Rs. 1000 crores in a matter of three months ending June, 2001 ? What does one think when two financial institutions have to provide over Rs. 5,500 crores for provisioning of bad and doubtful debts? What does one think when during the two months of May and June 2001, there are no capital issues to fund investment projects? All this is apart from the sharply declining rate of growth in industrial production and, dare we say in industrial profit buttressed so often by "Other Income"? 9. It would be all to easy in this situation to give way to a mood of unalloyed pessimism just as we had in the past given way to a mood of unrestrained euphoria. In the latter case, even shares of worthless companies were quoted at fabulous premia but where pessimism abounds, it is natural that shares of companies which are basically sound show good profits and show long term promise, come to be severely undervalued. 10. From this situation emerges a number of quirks in our stock markets; from this situation also emerges opportunities for sensible and profitable long-term investments. In a situation of euphoria, theories are invented to justify fabulous prices (recall Harshad Mehta's "Revaluation of Assets" theory) but in reverse in a situation of utmost pessimism, there are always theories and reasons to explain why shares should remain or be undervalued. We have some striking illustrations: * A share which for 3 three years in succession has been earning more than Rs. 85 per share is confined to a PE ratio of 7-8 times; reason, it belongs to the "Commodity Sector", it is therefore cyclical at both the national and international levels and in any case, the company management ensures that neither a bonus nor a generous buyback will take place. A sterling performance which has made the company internationally competitive at a time when most Indian companies find themselves internationally uncompetitive has been ignored on the grounds of the above reasons. * Another company universally rated as one of the best performers among the new companies found itself suddenly rated (or de-rated?) as a "Commodity company", in consequence the share lost 40% after this new classification made by a prominent investment outfit. Once again there is always a good reason to keep the share undervalued. * The share of a company that shows a profit of nearly Rs. 500 crores is quoted only Rs. 20 more than that of a company that shows a loss of Rs. 500 crores. * A whole group of companies which have gone through the painful period of restructuring and have atleast right now begun to show substantial recovery are yet put in the dog house, this time because even though these companies themselves are doing very well, the industries to which they belong are faring badly as a group * There are some public sector companies whose performance has been outstanding, but they must be undervalued (a) because like GAIL they may become victims of erratic policies of privatisation and (b) because two years down the road, their monopoly power may collapse under the weight of competition. 11. The question often asked whether the shares on our stock markets have reached the bottom, can therefore only be answered by a specific evaluation of the competitive strengths of the companies concerned and it is in this area that there are, in our opinion quite a few (not too many) shares which need to be looked at and which, in our opinion, may command a much higher price as and when the turning point arrives. But when will this turning point arrive? 12. THE CONNECTIVITY IS NOT THERE! Before we come to this central question, another crucial question arises. If our Indian economy is forging ahead with a growth rate of 6% which is one of the highest in the world, how come sectors after sectors of the Indian economy, and certainly the stock markets, are in such a state of despair and depression? There is something missing in the current analysis of the Indian economy which does not ask why this paradoxical situation prevails. 13. The answer lies in the fact that the fastest growth sector of our economy viz. the Informatics Sector and to some extent the Telecommunication and the Entertainment Sectors are obviously not generating the growth impulses for the Indian economy as fast and as wide spread as they should. We rejoice, as indeed we must, that our Informatics Sector this year will touch atleast 8.5 billion dollars of earnings but why is it this impact not felt on the several sectors of the Indian economy which are struggling with very low rates of growth and indeed in some cases with very substantial losses? And why is it that in the Informatics Sector, a projected growth rate of 30-40% (phenomenal for any sector) now deserves P/E ratios of only 3 or 4? 14. Imagine if our rural income rose by 8 billion US$, what would be its impact on Indian industry; imagine again if the revenue of Indian Industry rose by 8 billion US$, what would be the impact on the whole Indian economy, on the tax revenues, and indeed on our fiscal deficit itself. By contract the gains in the Hi-tech sector have not had an impact on the recession-struck areas of the Indian economy and certainly of the Indian industry. No doubt, Indian industry has its own ills - that of over- capacity, over crowding and over-manning but the dynamic growth sectors of India have little or no saving grace for the large sectors of Indian industry which are crying out with the pangs of over- capacity and subsequent deficiency of demand. 15. It is richly ironical that the Indian economy after having reduced agriculture with its huge population to having not more than 25% of our GDP relies on this relatively small income segment to carry the day for it. 150 years ago, a British cabinet minister said "The Indian economy is a gamble in monsoons". Now the accepted wisdom is that this time we can see no other favourable factor on the horizon other than the favourable monsoon. A 150 years later, we say the same thing ! There is a difference however. When the monsoon impact was noted a 150 years ago, Indian agriculture accounted for 75% of India's GDP; today it accounts for 25%. To expect agriculture alone to carry the day for the remaining 75% of India's economy is a little too imaginative. Obviously it will have to be combined with substantial capital expenditures particularly in the area of infrastructure and hopefully with the presumption of a broad political stability throughout the country, particularly such stability as will permit substantial privatisation for the raising of resources for the Governments. 16. Again, several studies have pointed out that the easy going assumption that the favourable monsoon will automatically mean increased rural income may not hold true this time if only because there is already a surplus of foodgrains to deal with, nor is it so certain that higher rural income will automatically translate themselves into a higher demand for most of the products of Indian industry. Equations which did hold valid 50 years ago or even 20 years ago, may not now be automatically valid unless combined with other policy measures. 17. This does not mean that there are specific industries and specific companies which will not feel very early in the day the beneficial impact of the monsoon. But when one speaks of Indian industry as a whole, for which we are predicting a turnaround, a number of time lags and gestation periods will have to be borne in mind. Our own belief is that if the good monsoon is combined with major public works programme and a fair measure of political stability, the beneficial impact may make itself felt by around March of next year. 18. As and when the turning point for industry as a whole does arrive, we believe it will be very swift and rewarding. There are many reasons why this will be so but easily the most important is the enormous over-capacity which exists in almost every single industry. This will mean that when the pick up does come, without any substantial new investments by way of capital expenditure, a sharp increase in industrial production will be possible rewarding the economy with substantial increases in production. There have been repeated regrets expressed about "investment famine" in Indian industry, but by and large, in most cases and in most companies, the substantial over-capacity already exists. The real area where the effects of an investment famine will be felt is in the area of infrastructure facilities and services. But for a period of a year or two, industry as a whole will be able to show substantial increases in production and hopefully in sales, as and when the turning point arrives without any major increases in capital expenditure. 19. Another factor that will greatly assist the speed and strength of the recovery will be the substantial increases in productivity that have been secured by a number of companies in the recent past. These gains have been virtually obliterated in most cases by the penalties of unutilised capacities. In other words, to the extent that production has been secured, there have been considerable productivity increase but to the extent that there has been unused or unutilised capacity, these gains of productivity have been virtually wiped out. Once increased capacity utilisation becomes the order of the day, the gains of productivity will now be more apparent benefitting the Indian consumers and the Indian tax revenues alike in a number of ways, apart of course, the economy as a whole. 20. We therefore conclude that we have a longer period to wait for the turning point than December this year, but as and when the turning point does come (by our rough estimate around March/ June, 2002), it will be both in speed and in strength a very major recovery. Hence, we in the Tata Investment feel that in advance preparation, we should replenish our funds for the benefit of our shareholders through the issue of Zero Coupon Convertible Debentures of Rs. 100/- each of the value of Rs. 32.82 crores. These debentures will be issued in the ratio of 1 for every 5 ordinary shares and in effect will mean that for a price of Rs. 100/-, 2 shares of the Company will be made available together with a sum of Rs. 20/- over the period of the next 11/2 years. We have issued this particular scheme before to your great advantage and we repeat that this time again it will be hopefully to your advantage both from the points of view of high yield and prospects of capital gains. Mumbai, August 16, 2001. Chairman