Gec Alsthom'S `Extraordinary' Prop Story Continues

GEC Alsthom India, soon to be renamed Alstom India, one of the largest manufacturers of electrical power transmission and distribution equipment, witnessed an erosion in its bottomline in the fiscal 1997-98.

In spite of a nearly 4 per cent rise in sales turnover in 1997-98 compared with about 13 per cent in the previous year, PAT of the company declined by 43 per cent.

In the previous fiscal, the company had registered an almost-25 per cent drop in PAT. It was only because of the extraordinary items which consist of amortisation of the company's liability under voluntary retirement schemes and profit on sale of property at Chennai, that the company registered a profit after tax of Rs 6.39 crore. This is not the first time that the company has sold its fixed assets. It registered a profit of Rs 24 lakh in 1992-93, Rs 27 lakh in 1993-94, Rs 8 lakh in 1994-95 and Rs 43 lakh in 1995-96 by selling its fixed assets.

 

In 1997-98, the company netted Rs. 75 crore by selling of its low-voltage equipment and engineering plastic divisions to GE Electrical Distribution & control Co., a subsidiary of General Electrical Co of the US. Though the deal was completed during last year, the shareholders approved if only on April 14. So, only in the current year's accounts the effect of the deal will be reflected. Part of the sale proceeds will be used to repay loans.

In the first half of 1997-98, the company registered a profit of Rs 14.9 crore by selling its Chennai property. During the same period, the cost incurred due to the voluntary separation scheme (VRS) was Rs 17.45 crore.

According to GEC Alsthom India's managing director K K Moradian, effective April 1, 1997, the company retroactively changed its accounting treatment of VRS related costs from amortising the actuarial values over a period of five years to expending them in the year the scheme is announced. As a result of the change in the accounting policy, the current year's profit is lowered by Rs 8.93 crore.

All these have been adjusted against profit after tax which brought down the net profit to Rs 2.72 crore against Rs 3.84 core in the previous year. In view of the low profitability and difficult cash situation, the company skipped dividend for the year. In 1996-97, it paid 10 per cent dividend to its shareholders. In 1997-98, GEC Alsthom India's interest burden rose by 24 per cent and depreciation by 7.3 per cent. All these factors led to a fall profit front despite lesser tax provision.

As a result, the profit-after-tax margin of the company increased only by 1.2 per cent compared with nearly 2 per cent in the previous year. Hence, the EPS also fell from Rs 2.83 to just Rs 1.61 during the same period. According to Moradian, lower sales in transformers and low-voltage equipment products has resulted in lesser profitability. Fifty-four per cent of the company's sales comes from the low-voltage equipment division and 17 per cent from transformer division. Both units suffered a demand recession both in 1996-97 and 1997-98.

The offtake of the electrical equipment in India has slowed down due to the sluggish activities in the power generating sector in recent years. The addition to fresh generating capacity has significantly slowed down in 1996-97 and 1997-98 compared with the earlier years. Nearly eight per cent of the company's sales comes from the export market. In view of the sluggish demand on the domestic front, GEC Alsthom India is planning to expand its export market through its parent company, Alstom.

All the international units of GEC Alsthom were renamed as Alstom on June 22 following a decision earlier this year by the 50:50 partners General Electrical and Alcatel Alsthom of France to reduce their stake to 24 per cent each and offer the rest to public. Recently, the company acquired the operations of Cegelec. The new name, Alstom India, will, formally, be adopted at its AGM on August 18.

It has bagged a $16 million order form the Indian Railways for supply of and installation of 50 asynchronous ONIX units. Though initially four units will by supplied by its overseas divisions, rest will be made in India.

BS Research Bureau This will be the beginning of the company's expansion into rail transport.