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Sri Vishnu posts Rs 60.5 million net on Rs 1.63 billion sales, Raasi Rs 60.5 m on Rs 4 b

Sri Vishnu Cement Limited's annual report for the year ended March 31, 1998 has been released. The company, which has been in the eye of a storm following chairman B V Raju's open offer for a 20 per cent stake, has posted a profit after tax of Rs 60.5 million on a total sale of Rs 1.63 billion during the year.

Raasi Cement, that was the chief promoter of Sri Vishnu until it was taken over by India Cements Limited, posted a net profit of Rs 65.6 million on a total sale of Rs 3.99 billion.

It may be recalled that Sri Vishnu's 39.5 per cent stake Raasi held was transferred to nine investment companies in December 1997 at Rs 10 per share.

Raasi's operating margins fell sharply during 1997-98 to 9.6 per cent from 15.8 per cent in 1996-97. In the case of Sri Vishnu, the operating margin slipped marginally to 13.2 per cent from 15.4 per cent in the previous year.

In absolute terms, Raasi's gross profit fell sharply from Rs 441.3 million in 1996-97 to Rs 162.7 million in 1997-98, a fall of 71 per cent. On the other hand, Sri Vishnu's accounts reported a fall of only 24 per cent in gross profit.

Raasi Cement's profit before tax to gross sales ratio dropped heavily to 2.1 per cent during the year from 6.9 per cent in the previous year.

On the other hand, Sri Vishnu, also managed by the B V Raju group during the years under review, fared well in spite of a downslide in cement business. The performance has surprised market analysts because Sri Vishnu was considered a sick company until 1996, having been referred to the Board for Financial and Industrial Reconstruction.

The contrast in performance of the two companies is surprising as the manufacturing units as well as markets of both companies were in the same region, analysts said. In fact, the realisation for cement in both companies was down by two per cent.

Analysts said the former management of Raasi must have been fully aware of the likely performance of the two firms, both controlled by B V Raju when Raasi decided to divest its 39.5 per cent stake at a mere Rs 10 per share in December 1997. In the light of the results, this amounts to gross undervaluation, said an analyst.

The contrast is even sharper now that the B V Raju camp is willing to pay Rs 100 per share for an open offer of 20 per cent in Sri Vishnu.

Financial institutions, which permitted the former Raasi management to divest its Sri Vishnu shares at par, are now getting upwards of Rs 50 for their shares. In August, all three financial institutions sold their Sri Vishnu shares to the B V Raju camp at prices ranging from Rs 55 to Rs 100.

At a meeting on September 4, the Securities and Exchange Board of India decided to allow the B V Raju camp to come out with an open offer for 20 per cent of Sri Vishnu stake. It decided to delink the open offer from the controversial transfer of Raasi's holding in Sri Vishnu at par value in December 1997.

The SEBI officials said if their investigations revealed that the nine investment companies had acted in concert in buying out the Raasi stake in Sri Vishnu, the transfer of shares could be reversed.

Meanwhile, Raasi's new board has alleged that the previous management sold goods below cost of production and said is reviewing the transactions.

On the sale of 39.5 per cent stake in Sri Vishnu, the Raasi report said, though the transfer was effected in December 1997 and the money paid until March 1998, Raasi obtained approval of the Industrial Development Bank of India for the divestment only after the close of the financial year. The company has received a complaint from a shareholder detailing certain infirmities in this transaction, and the management is reviewing the transaction de novo.

UNI