Debt reduction key for revival of the Ashok Leyland stock

The falling interest coverage ratio is a worry. From a comfortable 3.5 in the first half of the last financial year, the ratio has fallen to 0.65 in current year. Photo: Ramesh Pathania/Mint

Live Mint : R Sreeram : 7 Nov 2013

Best thing management can do now is conserve earnings by reducing debt, which is eating into operating profit

Ashok Leyland Ltd reported a weak performance for the September quarter. Sales fell 23% and the company plunged into a loss as high discounts and raw material costs hit margins.

Considering the sharp fall in volumes, the losses did not come as a surprise. What was a surprise though was the sharp rise in debt and finance costs. In June, the company had said it was planning to lower debt by Rs.500 crore by reducing working capital loans by the end of the current fiscal year. This led to the fond belief that finance costs would edge down.

Contrary to these hopes, total borrowings jumped 39% to Rs.4,894 crore, leading to a 20% rise in finance costs. According to Nomura Research, working capital increased by Rs.380 crore in the first half of the current fiscal year.

The sharp rise in borrowings and finance costs unsettled analysts. But at 1.3 times, the debt to equity ratio is manageable. The company is looking to restrict capital expenditure, reduce working capital and sell more non-core assets in the next few months. In a conference call with analysts, the management said it is aiming to raise Rs.700-1,000 crore and will use the amount to repay debt. Still, the comments did little to soothe investors. The stock plunged 5% on Thursday.

The worry is the falling interest coverage ratio. From a comfortable 3.5 in the first half of the last financial year, the ratio has fallen to 0.65 in current year. That suggests the company’s operating cash flows are insufficient to service the finance costs.

The outlook for the core business, meanwhile, continues to be dim. Sales are sluggish. To woo customers, manufacturers are stepping up discounts. From an average of Rs.1.65 lakh per unit in the last quarter, discounts have risen to Rs.1.75 lakh per unit now. High discounts can weigh on realizations. With raw material costs inching up (especially steel), analysts fear that margins and operating profits will continue to be under pressure for the rest of the fiscal year.

These concerns are leading to reduction in earnings estimates. With sales showing no signs of revival, some broking firms like IDBI Capital Market Services Ltd have cut their volume and margin estimates for the next fiscal year as well. Overall, with the outlook for the core business not encouraging, the best thing the management can do at this stage is to conserve earnings by reducing debt, which is eating into operating profits.

Worsening asset quality weighs on PNB and Indian Bank

Punjab National Bank’s net profit more than halved to Rs.505 crore from a 
year ago, the lowest in six years, because of high provisioning towards 
non-performing loans, while Indian Bank’s net profit fell 38% to Rs.306 crore
 for the same reason. Photo: Mint

Live Mint :Krishna Merchant :11 Nov 2013 

The mark-to-market losses the banks had to book in their bond 

portfolios added to the pain, and margins also got squeezed 

owing to volatile money markets

The story of public sector banks’ September-quarter earnings is the same

 across the board: that of worsening asset quality weighing on profitability

. The numbers of Punjab National Bank (PNB) and Indian Bank, which 

reported earnings on Friday, were no different. The mark-to-market 

losses the banks had to book in their bond portfolios added to the pain, 

and margins also got squeezed owing to volatile money markets.

PNB’s net profit more than halved to Rs.505 crore from a year ago, 

the lowest in six years, because of high provisioning towards

 non-performing loans. Indian Bank’s net profit fell 38% to Rs.306

 crore for the same reason.

A worsening economy that is seeing loans turning bad even among

 large and medium-sized companies is hitting banks hard. PNB’s gross

 non-performing assets (NPAs) as a percentage of total advances rose

 to 5.14%, the highest in 13 quarters. Indian Bank’s gross NPAs were 

at 3.76% at the end of September, 35 basis points (bps) higher than

 a quarter ago. One basis point is one-hundredth of a percentage point.

PNB, in particular, was among the hardest hit. Unlike some other public 

sector banks, PNB’s rate of fresh loans slipping into bad loans is worsening.

 Fresh slippages in the September quarter amounted to Rs.5,280 crore,

 compared with Rs.3,271 crore in the three months ended June, mainly 

from the services, industries, construction and chemical products segments. 

The bank also recast loans worth Rs.2,770 crore, the same as in the June quarter.

That’s not all. Loan growth was hit as well. PNB grew its advances 

6.5% in the September quarter over a year ago, while Indian Bank’s

 advances were better at 15%, although it was below the industry

 average of around 17%. In a quarter where domestic money

 market rates shot up owing to the central bank’s defence of the 

rupee, the net interest margins were compressed. PNB reported 

a 5 bps sequential decrease in margins to 3.47% and Indian Bank’s

 net interest margin, or the difference between the cost of deposits

 and the return on deposits, fell 13 bps to 2.69%.

As many other state-run bank managements have done this 

earnings season, the executives at PNB also said the worst may

 be over. However, as this column pointed out last week, with the

 economy yet to get out of its slump, credit growth is falling once

 again after reaching a peak of 18.1% in mid-September.

 With other indicators such as the purchasing manager’s indices

 showing continuing contraction, asset quality problems may not

 abate in the coming quarter as well. Thus, it was not surprising

 that both the shares fell on Friday following the results announcements.

 Given the uncertain economic recovery, the prospects for public sector

 bank shares are bleak.

G E Vahanvati, the Attorney-General of India, :Who Is This Man Firing The Gun For?

UTTAM SENGUPTA : Outlook :Nov 18,2013

Goolam Essaji Vahanvati, the Attorney-General of India, 
courts more controversies than he helps dispel

Things have come to such a pass that every move Goolam Essaji Vahanvati, the Attorney-General of India, makes ends up fuelling further speculation about his future. Three weeks ago, the close-knit community in Delhi’s Supreme Court was all aflutter when the normally reserved Vahanvati greeted lawyers and court reporters with big smiles, handshakes, and even a bit of chit-chat. Only the previous month, he had uncharacteristically lost his cool in the apex court, complaining “I cannot carry everything in my head” and saying that he was being asked too many questions, and too fast.

Vahanvati quickly tendered an apology at the next hearing. But clearly, something is getting to the 64-year-old attorney-general—a much-observed and talked-about man, unlike most law officers of the government, past or present. That’s because questions are being openly asked whether the country is getting adequate and sound legal advice; as the country’s top legal officer, providing that is Vahanvati’s job. As an embattled UPA struggles with many demons of its own making—from 2G and Coalgate to the validity of opinion polls and the question of the functional ambit and autonomy of the CBI—Vahanvati has a stake in each and every one of them.

The past few years have been a public relations disaster for a man who had in a recent magazine profile reportedly confided that he had in his childhood dreamt of being driven around in an official car with a red beacon (and so he does, with a ‘fancy’ number—777—to boot). Partial to Vahanvati, former A-G Soli Sorabjee told Outlook, “I know Goolam. He has gone through hell.” Sorabjee should know how tough it is to be the A-G. He occupied the office in 2000, and fought a bruising battle with the then law minister Ram Jethmalani. Sorabjee won that round, as Jethmalani was made to resign.

Four law ministers have changed since 2009; two solicitors-general and an additional S-G have quit. Vahanvati has been the one constant.

The most frequently asked question today is what Vahanvati will do in 2014 when his term draws to an end, especially if the UPA does not return to power. There’s a growing buzz that he is seeking a suitable diplomatic assignment abroad or a Rajya Sabha berth in good time. In any case, after serving the government for a decade and a half, as the first Muslim advocate-general of Maharashtra since 1999 and then as solicitor-general of India from 2004 and the attorney-general from 2009, can he ever go back to private practice? Vahanvati did not respond to an interview request fromOutlook.

The A-G is not just a lawyer and the first law officer of the government, he is appointed by the President under Article 76 of the Constitution, remains in office till the pleasure of the President and draws a remuneration decided by the President. While he is expected to give legal opinion to the government as and when it seeks any, he is also expected to advise the government in upholding the rule of law. He is a leader of the Bar and must necessarily be eligible to become a judge of the SC. He is expected to assist the court in delivering justice.

It is in this capacity that the A-G is seen as a “friend of the court”, the government’s “conscience-keeper” and the legal custodian of the interests of 1.2 billion Indians. Legal eagles Outlook spoke to recalled the deposition of the first A-G of India, M.C. Setalvad, before the M.C. Chagla Commission of Inquiry against the then finance minister T.T. Krishnamachari. Setalvad’s scathing indictment of the minister led to his resignation in 1958. And though Congress MPs then raised questions about how the A-G actually turned out to be the prosecutor, Setalvad stayed on in his post till 1963.

But times have clearly changed. Vahanvati, the 13th A-G, is seen more as a facilitator for the government, tailoring his legal opinion and advice to suit the political establishment, crony capitalists and politicians. He has been described as the government’s ‘hit man’ (by top SC lawyer Rajeev Dhavan in Mail Today), provoking a veteran SC observer to quip that all A-Gs are “by definition hit men while some turned out to be even the henchmen of the government”.

A section of Delhi’s political grapevine attributes Vahanvati’s survival to the patronage he enjoys from 10, Janpath, and more specifically from everyone’s Ahmedbhai, Sonia Gandhi’s political secretary Ahmed Patel. Others speak of his proximity to Maharashtra politicians Sharad Pawar and Sushilkumar Shinde while everyone agrees that he has the backing of the who’s who of the industrial lobby in Mumbai, like the Ambanis, Ruias, Tata and Vedanta. His alleged friendship with Anil Ambani has often cast a cloud over his professional conduct.

A section of Delhi’s political grapevine attributes Vahanvati’s survival to 10, Janpath’s patronage, and Sonia’s political secretary Ahmed Patel.

As solicitor-general, he was accused of bypassing the law ministry and giving an opinion directly to the then telecom minister, A. Raja, which benefited Reliance Communications. In fact, Vahanvati became the first attorney-general earlier this year to depose as a witness in a criminal case related to the 2G scam. Again, his opinion allowed Reliance Power to divert surplus coal from Sasan coalmines in Madhya Pradesh, a decision that was frowned upon by the CAG, and one which would result in windfall gains for the company. Vahanvati and the next telecom minister Kapil Sibal were also accused of reducing the penalty of Rs 650 crore imposed on Reliance Communication to just Rs 5 crore for alleged violations of the Unified Access Service Licence Agreement.

Unlike his predecessors, he is also not seen keeping the political establishment at arm’s length. Consider his complaint about receiving a phone call in September from a woman who allegedly pretended to be UPA chairperson Sonia Gandhi. Media reports suggested that Vahanvati checked with UPA leaders and when informed that Sonia had not called him, lodged a complaint with Delhi Police. Curiously, the police initially claimed to have tracked down the caller and identified the lady as an officer working for a public sector undertaking. But thereafter not a whisper has been heard about the case.

“I do not know what wrong I committed in my last life that the media is after me,” Vahanvati said in court in 2011. But it is a tribute to his quiet networking skills and his friendship with media barons that the media has by and large left him alone. Indeed, Vahanvati has survived one controversy after another. To put this in perspective, there have been four Union law ministers since 2009, the term of each one shorter than his predecessor. M. Veerappa Moily lasted a little more than two years. Salman Khurshid a little more than one, Ashwani Kumar less than one while the present incumbent Kapil Sibal took over in May 2013 and, if not replaced, will also have a tenure of less than a year.

During this same period, two eminent lawyers—Gopal Subramaniam and Rohinton Nariman—also put in their papers as solicitors-general of India, apparently because they did not see eye to eye with Vahanvati. One of the additional solicitors- general, Harin Raval, resigned after accusing the A-G of compromising his position in court; another additional solicitor-general, Bishwajit Bhattacharya, released a book the day after demitting office on November 9, 2012, to give vent to his frustration. During his three-year tenure beginning 2009, wrote Bhattacharya, the A-G did not call a single meeting of all law officers together. Bhattacharya often received briefs late at night for cases to be argued the next morning in the SC.

What say? Vahanvati with Salman Khurshid, R. Chandrasekhar. (Photograph by Jitender Gupta)

Amidst such bloodletting, the one constant has been the A-G himself. Curiously, the apex court has been rather lenient to him. Consider Coalgate. Since the CBI has been investigating the role of government officials and politicians and possible criminality, the A-G—as the lawyer of the government—had no business interacting with the investigating and the prosecuting agency. But that’s exactly what he did. Even when an affidavit by the CBI director revealed that Vahanvati had misled the court, he was let off with the mildest of rebukes by the court as well as the government whereas Raval and law minister Kumar were forced to quit. Could it be because he has been defending the prime minister, who was directly in charge of the coal ministry? Is it because he knows too much?

He is said to be close to Sharad Pawar and Sushilkumar Shinde. He also has the backing of the who’s who of the Mumbai industrial lobby.

Yet another high-profile case where Vahanvati’s role app­ea­red suspect is the Vodafone case where the income-tax dep­artment demanded a whopping Rs 11,000 crore by way of taxes when Vodafone bought the Indian operations of Hutch. A day after the deal, $11 billion travelled from Cayman Island to the Hong Kong office of Hutch as payment. The money should have come to India and tax deducted at source but Vodafone took advantage of a Reserve Bank of India rule that allowed such transactions following a “general permission”.

After the Supreme Court cleared the deal and then FM Pranab Mukherjee brought in a retrospective amendment in the rules to address cases like this, Vodafone approached the government for conciliation and an out-of-court settlement. At this time, Vahanvati advised then law minister Kumar to deny conciliation. But soon after, Sibal took over as the law minister and sought fresh opinion from the A-G, he took a U-turn and advised him in favour of conciliation.

Vahanvati himself is not unduly perturbed by charges of flip-flop. “On numerous occasions,” he told The Times of India, “after the opinions are rendered, I receive requests to reconsider or review the opinion. This is sometimes based on additional facts or on some provisions of law or the Constitution not previously considered. This could lead to reiteration or reconsideration of the opinion....”

For instance, the Public Accounts Committee summoned Vahanvati to explain his conflicting opinions on the CAG’s contention that the government had withdrawn Rs 37,365 crore from the Consolidated Fund of India without Parliament’s approval in the past five years. Vah­anvati first advised the PAC the CAG’s stand was correct. But when the finance ministry called for a fresh opinion, he concurred and held that Par­l­iament’s approval wasn’t required as interest payment on I-T ref­u­nds was both a statutory and recurrent obligation.

His opinions have been so controversial that a plea was made under the RTI Act to make the A-G’s opinions public. But the A-G pleaded that he was not a public authority. Chief Information Commissioner Satyanand Mishra upheld his plea that the A-G was a “single entity”, did not have a secretariat unlike other constitutional functionaries and that his relationship with the government was that of a lawyer and client and not of servant and master. The cic also accepted the plea that the A-G had no administrative control over other law officers. The undefined role and position of the A-G, whose advice is not binding on the government, was further accentuated when former Union law minister Khurshid was quoted as saying, “The attorney-general is an officer of the court and not an officer of the government.”

There is a growing buzz that Vahanvati is seeking a suitable diplomatic assignment abroad or a berth in the Rajya Sabha in good time.

In a close-knit legal community—where relatives often occupy key positions—it is almost expected that conflict of interest situations arise. A successful corporate lawyer who rose to become the advocate-general of Maharashtra, he is close to business interests. Vahanvati’s son, Essaji, was a junior partner in the prominent corporate law firm azb, founded among others by Soli Sorabjee’s daughter, Zia Modi. His daughter, Sholeen, and son-in-law Tariq Carrimjee, both British citizens, work closely with investors, brokers and the stock exchange (see column by Kian Ganz).

With as much as 80 per cent of the SC’s workload comprising Special Leave Petitions involving civil or commercial disputes, and the bulk of the cases emanating from just four or five high courts (Delhi, Bombay, Madras, Punjab & Haryana and Allahabad), the possibility of conflicts of interest clouding the judgement of a corporate lawyer is clearly high. Vahanvati, like those belonging to similar lawyer families, faces the same allegations.

That said, people who have known Vahanvati are effusive in hailing him as a genius who has a ready solution to every problem. Above all, he is credited with having a sharp legal mind. He was the first Indian lawyer who was allowed to argue a case in London in the early 1980s. “A man of great integrity” is what eminent jurist Fali Nariman had said when Vahanvati was appointed.

By all accounts, Vahanvati is a likeable man with varied interests. He likes rock music and is a gardening enthusiast. Vahanvati is said to know the names and details of every plant brought in from all over the world in his four-acre farmhouse in Pune. He bred horses but following the death of his favourite horse, he reportedly gifted all the 17 horses he had to his friends “free of cost”. He lectured at St Xavier’s College and Sophia College, Mumbai, and wrote on history of food in the inhouse magazine of Taj. He also wrote a weekly newspaper column on legal affairs for four years.

His acquaintances too are fulsome in their endorsement of him. “Diligent”, “obsessive about details”, “relentless”, “generous”, “very sweet” and much “understated” are some of the adjectives used to describe Vahanvati. He is also said to be a “great raconteur”. A perceptive profile in Caravan, however, brought out a disconcerting detail. Vahanvati claimed that when his father died, he did not even have the resources to bury his body. He also claimed that he had no fascination for fancy stuff and pointed to an array of modest pens on the table. But Vahanvati’s son later told the interviewer that his father had one of the most extensive collection of expensive pens at his farmhouse.

 Why would the A-G be so economical with the truth on such a petty issue?

 There is no clear answer.

In a rare interview he gave to Misbah, a Dawoodi Bohra journal, after becoming the A-G, Vahanvati had spelled out his ambition. “I want to go down in history as the first attorney-general who really tackled the problem of judicial refo­rms.” But obviously Vahanvati has not been able to do so, pleading that he has become far too busy fighting legal battles for his masters. His critics and well-wishers are, however, left wondering whether he has served the country equally well.

கடன்பட்டார் நெஞ்சம் போல்..

நீதிநாயகம் சந்துரு தி இந்து  நவம்பர் 1, 2013

கடன்பட்டார் நெஞ்சம் போல் கலங்கினான் இலங்கை வேந்தன் என்ற அருணாசலக் கவிராயரின் பாடலையொத்து வங்கிக் கடனாளிகள் கலங்குவதில்லை. கடன் வசூல் வேட்டையில் இருக்கும் வங்கிகளோ “இன்று போய் நாளை வா” என்ற கம்பரின் காவிய வரிகளை கடனாளிகளிடம் கூறுவதில்லை.

வட்டிக்குக் கடன் வாங்கி திருப்பித் தராதவர்களிடம் வசூல் செய்ய முன்னொரு காலத்தில் வங்கிகள் உரிமையியல் நீதிமன்றத்தையே நாடின. இறுதி உத்தரவு பெற்று பின்னர் தொடரப்படும் முதல் மற்றும் இரண்டாம் மேல்முறையீடுகளையும் சந்தித்து, உச்ச நீதிமன்றத்தில் தொடுக்கப்படும் 

மேல்முறையீட்டையும் முறித்து பெற்ற இறுதித் தீர்ப்பாணையில் வழங்கப்பட்ட தொகையை வசூலிக்க நிறைவேற்றுமனு போட்டு, கடனாளிகளின் சொத்துகளைப் பகிரங்க ஏலமிட்டு வரும் பணத்தை எடுத்துக்கொள்ள ஆண்டுகள் பலவாயின.

சிவில் கோர்ட்களில் சிக்கித் தவிப்பதை மாற்ற 1993ல் வங்கிகள் மற்றும் நிதி நிறுவனங்கள் கடன் வசூலிக்கும் சட்டத்தின்படி கடன் வசூலிக்கும் தீர்ப்பாயங்களும் மேல்முறையீட்டுத் தீர்ப்பாயங்களும் உருவாக்கப்பட்டன. இருப்பினும், கடன் வசூலில் முன்னேற்றம் ஏதும் காணப்படவில்லை.

இத்தீர்ப்பாயங்களின் இடைக்கால உத்தரவுகளை எதிர்த்து உயர் நீதிமன்றத்தில் ரிட் மனுக்கள் தாக்கல் செய்து வழக்குகளை தாமதப்படுத்தவே கடனாளிகள் முற்பட்டனர்.

வழக்குகள் நிலுவையில் உள்ளபோதே கடனீட்டு ஆவணச் சொத்துகள் கை மாறுவதையும், விற்கப்படுவதையும் தடுக்கவும் இறுதித் தீர்ப்பாணைக்கு காத்திராமல் சொத்துகளைக் கைப்பற்றி விற்பதன் மூலம் கடன் தொகையை எடுத்துக் கொள்ளவும் 2002ல் கடனீட்டு ஆவணங்கள் மற்றும் நிதி சார்ந்த சொத்துகள் புனரமைப்புச் சட்டம் இயற்றப்பட்டது.

 வழக்கு தொடராமலேயே ஜாமீனாக கொடுத்த சொத்து விற்பனையைத் தடுத்து, அச்சொத்துகளை பொது ஏலத்தின் மூலம் விற்று கடன் தொகையை பெற உதவியது. வங்கிகள் பல சட்ட கவசங்களைப் பூண்டும், வரவேண்டிய கடன்கள் வாராக்கடன்களாகவே நின்றுவிட்டன.

தனியார் வங்கிகள் கடைப்பிடித்த நெறியற்ற வசூல் முறைகள் கடனாளிகளிடமிருந்து அபயக்குரல்களை எழுப்பின. தேசியமயமாக்கப்பட்ட வங்கிகளும் நெறிமுறை தவிர்த்த கடன் வசூல் வேட்டையைக் கைவிடாததால் கட்டப் பஞ்சாயத்துகள் மூலம் கடன்கள் வசூலிக்கப்பட்டன.

 கமிஷன் முறையில் கடன் தொகையை வசூலிக்க நியமித்த தண்டல் முகவர்களின் (தாதாக்கள்) அடாவடித்தனமும் கடனில் வாங்கிய வாகனங்களை நடுரோட்டில் கைப்பற்றிச் சென்ற நிகழ்வுகளும் தொடர்ந்தன.

இதைப்பற்றி வந்த வழக்குகளில் உச்ச நீதிமன்றமும் உயர் நீதிமன்றமும் வங்கிகளின் முறையற்ற நடவடிக்கைகளுக்குக் கண்டனம் தெரிவித்தன. 2002ம் வருடத்திய சட்டத்தின் கீழ் நடவடிக்கை எடுக்க சொத்துகளின் ஆவணங்களை, தனியார் கம்பெனிகளிடம் வசூல் செய்ய ஒப்படைத்ததில் பல முறைகேடுகள் நடந்தன.

கடனாளிகளும் கடனை திருப்பித் தராமல் பல மோசடி உத்திகளைக் கையாண்டனர். பெரும் கடன் பெற்றும் திருப்பித் தராதோரின் புகைப்படங்களை செய்தித்தாள்களில் வெளியிட வங்கிகள் முன்வந்த செயலுக்கு சென்னை உயர் நீதிமன்றம் தடைவிதிக்காதது மட்டுமின்றி மோசடிப் பேர்வழிகளின் திட்டங்களை முறியடிக்க வங்கிகளும் புது உத்திகளைக் கையாள வேண்டியுள்ளதென்றும், தனிப்பட்டோரின் அந்தரங்கம் பாதிக்கப்படுவதாகக் கூறுவது ஏற்கமுடியாது என்றும் தீர்ப்பளித்தது. 

ஆனால் பம்பாய் மற்றும் கேரள உயர் நீதிமன்றங்கள் வங்கிக் கடனாளிகளின் புகைப்பட வெளியீட்டு அச்சுறுத்தலுக்கு சட்ட அடிப்படை இல்லை என்றும் அவர்களது அந்தரங்கம் புனிதமானதென்றும் தீர்ப்பளித்துள்ளன. 

கடனாளிகளின் அந்தரங்கங்கள் புனிதமானவையா என்ற முடிவு உச்ச நீதிமன்றத்திடமே உள்ளது

‘கொடாக் கண்டர்களுக்கும், விடாக் கண்டர்களுக்கும் இடையிலான’ போட்டிகள் அதுவரை தொடரும்.