The Compass
Titan Industries has got its restructuring act together but it will be another year or so before it can claim to have attained success. It has restructured every one of its core business segments _ domestic watches, overseas operations and jewellery segment. Alongside, it has put in place cost-cutting and productivity improvement measures and restructured its debt portfolio.
The next challenge posed to it would be to increase cash generated from operations. One of the signs of a successful consumer durable business is to have a healthy cash flow commensurate to the size of operations. This will help reduce debt and give it more flexibility in operations. The likely infusion of funds from the sale in the current year of its Timex stake sale will give it some breathing space.
In 1998-99, though turnover and profits were higher, a conscious decision to support its European operations and growth of its jewellery business strained its finances. Thus, cash generated from operations fell to Rs 64.03 crore from Rs 78.7 crore in the previous year. After paying interest and taxes net cash from operations was just Rs 8.88 crore against Rs 22.05 crore in the previous year. This is on a turnover of Rs 482 crore.
Watch sales increased by 18.5 per cent in volume terms and according to the company, domestic watch operations are giving a return on capital employed of about 20 per cent. Its thrust on increasing penetration especially in the lower end segment is paying dividends. However, its overseas operations still fail to inspire. Exports slipped by 11.7 per cent to Rs 31.6 crore with its European operations continuing to be under pressure. This business too has been restructured and the company is expecting it to break even here in the near future.
The jewellery business benefited from the change in profile to attract more mainstream customers. Lower pricing and an increase in distribution contributed to a 55 per cent volume increase to 1.75 lakh pieces. The current year will see vigorous expansion in outlets and promotion to increase penetration. About 72 per cent of this business is through trade channels which will put continued pressure on its working capital requirements.
The table clocks venture does not seem to have created any value and the company is vacating the bottom end of the market. Decorative table clocks are where its thrust is going to be which is at present a nascent market. Thus, Titan's success depends upon growing each of its business segments without unduly straining its working capital position.
Insilco
Insilco's decision to fund the acquisition of MTZ's silica plant by diluting equity will affect valuations. The company could have instead funded the purchase through internal accruals and debt. Insilco is raising Rs 30 crore through a partly convertible debenture issue with the non-convertible portion accounting for 60 per cent. Given its Rs 50.71 crore equity capital the dilution seems relatively insignificant but Insilco is finding it difficult to service its existing equity itself. Since the debentures issued are zero interest, there will be no effect on the interest burden.
Insilco could have, however, opted for the debt route itself as its leveraging ability is quite comfortable at 0.57:1 as of 1997-98. Also, the company has been performing satisfactorily in the last one year and wiped off its accumulated losses. In 1998-99, Insilco posted a net profit of Rs 4.58 crore against Rs 1.15 crore in the previous year. Sales during the period was flat at Rs 45.72 crore against Rs 47 crore in 1997-98. Insilco had a cash profit of Rs 10.7 crore which may have resulted in further reduction of debt in 1998-99.<
