Sucheta Dalal :ITC gamble (30 June 2002)
Sucheta Dalal

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ITC gamble (30 June 2002)  

Has ITC not even heard of Unit Trust of India’s (UTI) dire financial troubles and its inability to pay dividends? Or that furious investors blame its near-collapse on frequent government interference and collusion between brokers/corporates and UTI’s previous chiefs? UTI holds 13.59 per cent of ITC’s capital and wants to sell the block to one big buyer (the obvious candidate being ITC’s parent BAT Industries).

ITC’s ‘top management’, more worried about protecting its own position has threatened to block such a move. It has instead ‘advised’ UTI, through the business press, to ‘approach a financial institution to underwrite’ its ITC holding or sell it to a consortium of Indian institutions and insurance companies. Alternatively, it suggests an international auction for the shares. It is almost as though the ‘professionally-managed’ ITC believes that its shares have a God-given right to be parked safely with Indian financial institutions to protect incumbent management.

And, that the institutions owe their allegiance to the company rather than to their unit holders and investors. Is it any wonder then that many government-run financial institutions are in the red?

Changing strategies

Hindustan Lever (HLL) is undoubtedly one of our most admired companies and has always rewarded its investors generously. Yet, its various plans, growth strategies and policy directions announced by its chairmen over the last three years have left investors completely flummoxed.

Let’s start with FY 2000. Chairman Keki Dadiseth in his exit speech talked excitedly about Project Millennium and the six-mega trends that HLL had identified after a lot of research. Based on these, the company had identified nine growth engines and also planned to harness the power of the Internet. The food business was to be a major thrust area and the company planned to diversify into laundry and housekeeping services.

Nobody knows what happened to the nine growth engines, but the last mentioned plans were quietly dropped. Next year, new chairman Vindi Banga said that HLL had ‘established three key Strategic Objectives for the Company’. More importantly, it has identified 30 power brands out of its 110-brand portfolio for a disproportionately high focus.

We don’t know how well that worked, because HLL had moved on this year to a different theme altogether. This time, Banga’s speech was all about a national strategy for exports and his vision of building a billion-dollar sourcing business out of India.

Wouldn’t it be nice if HLL started each year with a little recap on objectives and policy directions that it had identified during the previous year? One that discussed successes/failures and any course-corrections that it planned.

Dalmia’s new moves

The Joint Parliamentary Committee (JPC) investigating the Scam of 2000-01 talked tough to the regulators last week and demanded action against companies that had colluded with scamsters. One of the companies that the JPC has identified for immediate action is DSQ Software. The Securities and Exchange Board of India and the Department of Company Affairs have been asked to accelerate their investigation and initiate action. Meanwhile rapid changes at DSQ continue. The company has replaced its Statutory Auditor —Lovelock & Lewis—with Chaturvedi & Company (a firm that audits some other DSQ Group companies). Its problems with Lovelock & Lewis had begun in March 1999. Within days of signing the auditors report, they withdrew it and forced a re-audit claiming to have found out about certain important and material financial transactions that were not accounted for in the books. The company had extended its accounting year and had the accounts passed. Now it has changed its auditors.

Iridium grows stronger

While Indian financial institutions have written off nearly Rs 900 crore of their investment in Iridium Satellite LLC, the company is going from strength to strength. Unfortunately for Indian investors, the successful Iridium is different from the Motorola-promoted global satcom company that had gone bankrupt.

The Collusy Group then took it over for a paltry $25 million and it has been doing well ever since. Ten days ago, it launched two mobile-telephone satellites thereby ensuring the viability of its 66-satellite constellation until 2010. Then on June 26, it signed distribution agreements for the Asia-Pacific region with Singapore Telecommunications, Telstra and Telikom to market and sell Iridium services.

Indian institutions, which are battling Motorola in court are surely wishing that they could still have a piece of the new Iridium action.

Tailpiece: What is EBIDTA? It used to be Earnings before Interest Depreciation, Taxes and Amortisation, now it is Earnings before Indicting The Damn Accountant

-- Sucheta Dalal