Waiver Leg-Up

SAIL

Thanks to the waiver of Rs 757 crore interest towards the Steel Development Fund, SAIL has managed to better its loss estimates

SRF

The worst for SRF seems to be over and the company is headed for better times

ICICI Bank

ICICI Bank used the big profits provided by its treasury operations to clean up its books

Thanks to the waiver of Rs 757 crore interest towards the Steel Development Fund, SAIL has managed to better its loss estimates

The Steel Authority of India Ltd (SAIL) has managed to limit its losses to Rs 1,720 crore for the financial year 1999-2000. This exceeds its own expectation of keeping the loss at Rs 2,000 crore. The loss was contained on account of the benefit of Rs 757 crore available from the waiver of interest towards the Steel Development Fund (SDF), and also because of the fact that price realisations this year are healthier on better market demand.

This has been reflected in the fourth quarter results. SAIL had announced a loss of Rs 2,065 crore for the period April-December, 1999. The steel major has put its budgeted net loss estimate for the current financial year at Rs 700 crore. These projections come on the back of the recent uptrend in global prices and demand for hot-rolled (HR) products, a trend which first became visible in December 1999.

A supply shortage in the global HR market is anticipated which will escalate the prices even further. If prices increase globally, domestic prices would also follow suit and with the uptrend in demand, producers are likely to increase prices in the second quarter.

SAIL also effected cost savings to the tune of Rs 713 crore which led to a 2 per cent reduction in the variable cost of production. In addition, the thrust on inventory reduction yielded Rs 1,963 crore bringing about improved working capital management.

The worst for SRF seems to be over and the company is headed for better times

SRF Ltd announced spectacular results last week. The company has achieved a net profit growth of 98 per cent from Rs 13.53 crore in financial year 1999 to Rs 26.8 crore this year. This has been achieved after making a one time provision of Rs 32.01 crore for non-performing assets. The company has followed a stricter norm by providing for 50 per cent provisioning for an asset if it remains non-performing for six months and full provisioning after nine months. Sales grew by a modest 17 per cent to Rs 665 crore from Rs 570 crore in the previous year. This does not take into consideration the turnover of its international subsidiary in Dubai which would have taken the total turnover to Rs 919 crore.

Its debt burden has come down and margins have improved. Operating margins have improved by about three percentage points to 31 per cent. That this improvement has come at a time when the industry is still not out of the crisis augurs well for the company's future. The company has been able to tide over the South East Asian crisis much ahead of its peers. It also seems to be getting out of its financial mess after its acquisition of the nylon tyre cord unit from Ceat. In favourable times, the company should be able to perform better and sustain growth.

The company expects to maintain its earnings growth and has targeted a net profit of Rs 75 crore by financial year 2001. It plans to be a global player in the nylon tyre cord segment by expanding its capacities. This year, it plans to merge the unit it acquired from DuPont with itself to benefit from tax saving from accumulated loss of Rs 60-70 crore.

It plans to expand its capacities through debottlenecking and acquisitions. The company is also likely to receive Rs 45 crore from Montreal Protocol Fund for phasing out of chlorofluorocarbons. The worst for SRF seems to be over and the company is headed for better times.

ICICI Bank used the big profits provided by its treasury operations to clean up its books

Profits on sale of investments have helped ICICI Bank in more ways than one. The Bank's increase in net profits in 1999-2000 owes much to these profits. While the net profit increased by Rs 41.94 crore, profits on sale of investments amounted to Rs 101.14 crore. That's a big improvement from the Rs 12.44 crore profit on sales of investments notched up in 1998-99. In terms of US GAAP, ICICI Bank's gain on sale of trading securities amounted to Rs 93.6 crore. Total trading account assets as on March 31, 2000 amounted to Rs 2,822.8 crore.

Banks are increasingly looking to their treasury operations to help boost the bottomline, as spreads on conventional lending activities are being squeezed. For ICICI Bank, interest spread as a percentage of average working funds was 1.95 per cent, compared with 2.31 per cent in the previous year. The yield on advances was 12.06 per cent in 1999-2000, compared to 13.96 per cent in 1998-99. The bank was however able to lower its costs of deposits substantially from 8.55 per cent to 7.28 per cent. There was a large increase in low cost demand and savings bank deposits during the year. But that was unable to prevent the gap between advances yield and deposit cost shrinking to 4.78 per cent as against 5.41 per cent in the previous year.

Interest income was 8.95 per cent of working funds last fiscal, substantially lower than the 11.22 per cent recorded in 1998-99. Small wonder that the drop in yields is forcing banks to look at their treasuries to provide the profits. In 1999-2000, inspite of a pickup in the economy, ICICI Bank's credit (including corporate debt instruments) to deposit ratio fell from 55.78 per cent to 51 per cent. But one fall-out of this dependence on treasury operations could be increased volatility in earnings.

ICICI Bank also used the big profits provided by its treasury operations to clean up its books. Net non-performing assets as on March 31, 2000 were Rs 55.92 crore, compared to Rs 60.82 crore a year ago. That was achieved inspite of additional NPAs of Rs 67.72 crore during the year.

Provisions for non-performing assets were much higher at Rs 75.50 crore during the year compared to Rs 32.20 crore in 1998-99. Write-offs of credit losses amounted to Rs 55.9 crore, far higher than the Rs 8.5 crore written off in 1998-99.

(with contribution from Ishita Ayan Dutt)