14 Chapter 6

CHAPTER 6
CASE STUDIES OF COMPANIES

REPORTED TO THE BIFR
6.1 Introduction
As on 31 July 2000, the BIFR had registered 31 10 references of which
rehabilitation schemes were sanctioned in 708 companies. The Board rejected
1532 references, recommending winding up in 960 cases and dismissing 572
references as non-maintainable. There were 870 references pending with the BIFR
at various stages. Among the companies for which rehabilitation schemes were
sanctioned, only 277 companies were declared no longer sick. This shows that the
success rate is only 8.9 percent of the total number of cases registered by the
BIFR. The low success rate may be due to various factors like changes in
economic policies, defects in the rehabilitation schemes or their implementation.
The study revealed that the major factors responsible for the success of
the rehabilitation schemes are government policy, One Time Settlement (OTS) of
dues, support of the participating agencies, increase in sales and scale of
operation1. In order to test the relevance of these factors in the success of the
rehabilitation schemes, detailed studies have been conducted in eight companies.
he Multiple Regressions test conducted by taking 23 variables responsible for
the success of the rehabilitation schemes revealed that the impact of 5 variables is
relevant. See page no. I 1 7.
Chapter 6 158
These companies were selected on convenience basis from 45 companies reported
to the BIFR in Kerala state2. Three public sector companies and five private sector
companies are selected for the study.
The public sectors companies are
The Transformers and Electricals Kerala Ltd
The Steel and Industrial Forgings Ltd and
The Keraia Minerals and Metals Ltd.
The private sector companies include
The Elcera Substrates Ltd
The Pigments India Ltd
The Aluminium Industries Ltd
The Travancore Rayons Ltd and
The South India Wire Ropes Ltd.
6.2 Transformers and Ekctricals Kerala Limited
The Transformers and Electricals Kerala Limited (TELK) was
incorporated on 9'h December 1963. The Registered Office of the Company and
the Factory is situated at Angamaly South, Erndcularn District, Kerala State. The
company was promoted by the Government of Kerala and the Kerala State
Industrial Development Corporation (KSIDC) with technical and financial
collaboration with Hitachi Limited, Japan. The company is engaged in the
manufacture of power transformers, transformer components and gas circuit
breakers.
The company started commercial production in 1966 and the initial
activity was confined to the manufacture of 66 MVA transformers for the Kerala
State Electricity Board. Later, production range was extended to almost all EHV
2
Up to 3 1-07-2000, 45 companies were reported to the BiFR from Kerala state.
Rehabilitation schemes were implemented in 23 cases and among them seven companies
were declared no longer sick.
Chapter 6
(Extra High Voltage) equipment like Power Transformers (4500 MVA), Gas
Circuit Breakers, Reactors Isolated Phase Bus Duct, Instrument Transformers and
On-load Tap Changers.
Ever since the commencement of production in 1966, the company had
been working satisfactorily for the first fifteen years. An expansion and
diversification programme implemented in 1981-82 did not bring about the desired
result and the performance of the company started deteriorating since 1982-83.
Mounting losses, high debt and depleted working capital were the result. A
rehabilitation scheme was implemented in 1985-86 but its impact was minimal
and the performance of the company continued to languish. As on 3 1 March 1 990
the accumulated losses stood at Rs.4443 labs indicating a negative networth of
b.3456 lakhs.
The company implemented a new rehabilitation scheme in 1990 with
relief and concessions from Banks/Financial Institutions and fund support from the
Government of Kerala. Thereafter the company showed signs of recovery and
started generating profits continuously since 199 1-92. However, the amendment
made to the BIFR Rules in 1993 confined the company within the definition of a
'Sick Industrial Company' under Section 3(1) (o) of SICA, 1985, since the
networth of the company remained negative at Rs.1946 lakhs as on 31 March
1995. The Board of Directors reported the matter to the BIFR in May 1995.
The BIFR declared TELK as a 'Sick Industrial Company' in August 1995
and the Industrial Development Bank of India (IDBI) was appointed as the
Operating Agency to formulate a rehabilitation scheme for the company. The
IDBI identified the causes of sickness in TELK and suggested suitable revival
proposals. However, the sanctioning of the rehabilitation scheme was delayed till
31 December 1997 due to the delay in arriving at a consensus among the
pmicipating agencies. The operating results of TELK horn 1988-89 to 1994-95
are given in Table 6.1 .
Table 6.1 :- Operating Results of TELK
(Rs. in lakhsl
Year
1988-89
1989-90
1990-9 1
199 1-92
1992-93
1 993-94
1994-95
Source: Ann1
The table shows that the amount of accumulated losses as on 31 March
1995 stood at Rs.3313 lakhs indicating a negative networth of Rs.1946 lakhs.
7-
Sales
I
3316
3969
5208
5714
7069
7212
9437
6.2.1 Causes of Sickness
The main reasons for sickness in TELK had been identified as recession
in the industry and liquidity crunch caused by
Reports.
i. non-sanction of additional working capital limits by banks to meet
higher levels of operat ions
Networth
-3546
-3456
-3352
-3 168
-2900
-2614
Net Profit
(Loss)
(379)
(56)
(35)
56
264
276
ii. delay in the col1ection of receivables due from various Electricity Boards, the
major customers
Accumulated
Loss
4447
4443
4578
4522
4258
3982
iii. decline in the level of advance payments from the buyers and
669 3313 1 -1946 1
iv. heavy debt servicing obligation.
6.2.2 Revival Proposals
The long-term viability of TELK depended on the reduction in interest on
term liabilities. The revival scheme, therefore, included proposals for One Time
Settlement: (OTS) of dues to Financial Institutions. As per the OTS proposal the
entire amount of dues to Financial Institutions were agreed to be settled for
Rs. 1262 lakhs waiving all liquidated damages, compound interest and 50 percent
of the simple interest due amounting to Rs.335 lakhs. As per the agreement 50
percent of the settled amount shall be payable upfront (within one month of
sanction of the scheme by the BIFR) and the balance amount in four quarterly
instalments within one year thereafter.
6.2.3 Cost and Means of Finance
The total cost of the rehabilitation scheme was Rs.1714 lakhs. The
scheme proposed a capital expenditure3 of Rs.211 lakhs to take care of normal
replacement of obsoletelworn-out items of machinery. It made a provision of
Rs. 1262 lakhs to arrange OTS of dues to Financial Institutions, Rs.101 lakhs to
settle pressing creditors and Rs. 140 iakhs to pay off statutory liabilities. The cost
of the scheme and the means of finance are given in Table 6.2
3The scheme envisaged a capital expenditure of Rs.569 lakhs to take care of normal
replacement of obsoIete/worn-out items of machinery for the next six years. However, capital
expenditure required for the first two years was estimated at Rs.211 lakhs and has been
considered under the rehabilitation scheme.
Table 6.2:- Cost of the Scheme and Means of Finance
(Rs. in lakhs)
Statutory Liabilities
OTS of dues
Capital Expenditure
Pressing Creditors
Means of Finance
I
Rs. Cost of the Scheme
Total 1
Rs.
2 1 1
101
140
1262
Total I 1111
Cash accruals
Source: Rehabilitation scheme.
Loan from the Government
of Kerala
The Government of Kerala has agreed to provide Rs.1262 lakhs to
arrange One Time Settlement (OTS) of dues to Financial Institutions. Cash
accruals amounting to Rs.452 lakhs were the source of finance to meet other costs.
-
1262
6.2,4 Relief and Concessions
6.2.4.1 Institutions (IDBI, IFCI, ICICI, UTI and LIC)
To accept One Time Settlement (OTS) of dues outstanding as on 31
December 1996 on the following basis.
i . To waive penal charges, compound interest and 50 percent of simple interest
accrued on 31-12-1996.
ii. To accept payment of the balance amount of 50 percent simple interest and
the entire amount of funded interest and the principal amount of term loans
outstanding as on 3 1 - 1 2-1 996 on the following terms.
iii. Upfront payment of Rs.631 lakhs ie,, 50 percent of the settled amount within
one month from the date of sanction of the scheme by the BIFR.
iv. The balance 50 percent of the settled amount shall be paid in four quarterly
instalments commencing three months after the date of down payment.
Chapter 6 163
v. The settled amount shall carry interest @ 16 percent per annum with effect
from 0 1-0 1 - 1997 till the date of final payment.
6.2.4.2Banks (SBT, FB, SIB)
i . To sanction additional working capital of Rs.560 I&s immediately inl997-98.
ii. SBT to convert core irregularity of Rs.500 lakhs as on 3 1-03-1997 into
working capital term loan to be repayable in quarterly instalments in seven
years commencing from 1997-98 carrying interest @ PLR.
6.2.4.3 Government of Kerala
i. To defer sales tax liability of Rs.1220 lakhs and make it repayable without
interest after the completion of the rehabilitation period.
ii. To defer accrued guarantee commission of Rs.405 lakhs due from the company
without interest. Also guarantee commission accruing during the period of
rehabilitation shall be deferred.
iii. To provide interest free funds (Rs.1262 lakhs) including the amount already
deposited with the IDBl for financing the rehabilitation scheme including
payment under OTS.
iv. To allow the company to clear the Industrial Development Fund (IDF) loan
outstanding together with interest due and accrued as on 3 1 - 1 2- 1996 in three
equated annual instalments commencing from the year 2002-02 carrying
simple interest at document rate.
v. To furnish guarantee for the assistance to be provided by banks.
vi. To accord its consent to the company for the appointment of a professional as
whole time Finance Director of the company immediately.
6.2.4.4 SIDCO
i . To allow the company to clear Industrial Development Fund loan outstanding
together with interest due and accrued as on 3 1-12-1996 in three equated
annual instalments commencing from the year 2001 -02 carrying simple interest
at document rate.
ii, To waive all penal charges.
6.2.4.5 Workers
To enter into a supplementary agreement with the company assuring that
they would extend their whole hearted co-operation in the implementation of the
rehabilitation scheme.
6.2.4.6 Company
i. To repay the existing term loan of Rs. 1 15 I f i s to SBT as per the original
agreed schedule carrying document rate of interest.
ii. To mange for mobilisation of unsecured loans from Government of Kerala for
repayments to Financial Institutions under OTS.
6.2.5 Projected Operating Results and Financial Position
The rehabilitation scheme aimed at making the operations of the company
profitable by increasing sales and enhancing its profitability by reducing interest.
The scheme projected the financial position and operating results of the company
for a period of eight years from 1996-97 to 2003-04. To make the operations of the
company viable the scheme projected a sdes target of b.87 19 I d s in 1996-97
and to improve it gradually to Rs. 14043 lakhs by 2002-03 and thereafter to
maintain the same level. The rehabilitation scheme also made proposals for the
financial restructuring of the company by arranging One Time Settlement (OTS)
of dues to Financial Institutions to reduce the interest charges &om Rs.685 lakhs in
1996-97 to Rs.483 lakhs by 2003-04. The financial position and operating results
of TELK projected in the rehabilitation scheme are given in Table 6.3.
Chapter 6 165
The table points out that the increase in sales and reduction in interest
Table 6.3:- Projected Financial Position and Operating Resuits of TELK
would help the company to attain a net profit of Rs.3 ! a s in 1996-97 and to
improve it gradually to Rs.803 lakhs by 2003-04. This would help the company to
make its networth positive in 2000-01 and to wipe off the entire mount of
(Rs.
2002
372
11567
4922
167
3093
3260
1358
10
267
1101
13059
11780
516
763
763
in lakhs)
1
2003
340
12792
5218
83
3320
3403
1358
10
2045
14043
12597
50 1
945
945
accumulated losses by 2002-03.
2004
293
13659
5308
3336
3336
1358
10
2848
14043
12757
483
803
803
6.2-6 Level of Implementation of the Rehabilitation Scheme
2000
364
9534
4373
333
2683
3016
1358
10
1649
-281
11347
10285
476
586
586
1999
354
8639
4121
417
2505
2922
1358
10
2234
-866
10591
9636
517
438
43 8
In TELK all major proposals of the rehabilitation scheme were timely
2001
368
10442
4610
250
2848
3098
1358
10
1030
338
12016
10908
490
618
618
1998
33 1
7309
3895
63 1
500
1830
2 1
1358
10
2672
-1304
10000
9077
535
388
388
Particulars
Financial Pmltion:
(as on 31 March)
Fixed Assets (net)
Current Assets
Current Liabilities
Term Liabilities:
Financial Institutions
Banks
Working Capital
Share Capital
Reserves & Surplus
Accumulated Loss
Networth
Operating Rmults:
@ar ended 31 March}
S.V.P
Operating Expenses
Finance Charges
Operating Profit
Net Profit c/f
Source: Rehabilitation
implemented and all participating agencies fulfilled their promises in time. The
1997
308
6786
3632
1262
170
2260
3692
1358
10
3061
-1693
8719
7909
685
125
3
scheme.
Promoters, Government of Kerala had provided interest free loans amounting to
Rs.1262 lakhs to arrange OTS of dues to financial institutions. However, on
Chapter 6 1 66
account of the liquidity problems the company diverted Rs.162 lakhs for other
purposes. As a result dues to Financial Institutions amounting to Rs.530 lakhs
(Rs.162 lakhs principal and Rs.368 lakhs interest) remained pending as on 31-03-
2000~. Similarly the company could not mobilise Rs.2 1 I lakhs for the replacement
of obsoletelworn out items of machinery.
6.2.7 Operating Results of TELK
The rehabilitation scheme projected the operating results and fmancial
position of TELK for a period of eight years from 1996-97 onwards. But the
rehabilitation scheme was implemented only w.e.f., 1'' January 1998, after a delay
of nearly two years. During this period the performance of the company was
satisfactory. The sales of the company were Rs.8235 lakhs in 1996-97 and
Rs.8779 lakhs in 1997-98 and it earned a total profit of Rs.337 lakhs during the
same period.
The performance of the company was not satisfactory after implementing
the rehabilitation scheme. The sales of the company were much lower at Rs.6969
Iolkhs in 1998-99 and Rs.5205 lakhs in 1999-00 as against the projected sales
targets of Rs.10591 lakhs and Rs.11347 lakhs respectively during the same period.
Poor sales and heavy operating expenses incurred resulted in a huge loss of
Rs.1090 lakhs in 1998-99 and Rs.1883 lakhs in 1999-00. Figure 6.1 is the
graphical representation of the projected and actual sales and profit/loss of TELK.
Draft Modified Rehabilitation Plan for TELK. P24.
Fig: 6.1 :- Projected and Actual Sates and ProfitlLoss of
TELK
Year
- Projected Sales - Projected Profrt
- Actual Sales - Actual Profit
Figure 6.1 exhibits an increasing trend in sales and a profitable operating
performance of the company only during 1996-97 and 1997-98. The downward
slopping of the graphs during 1998-99 and 1999-00 reflect the sharp decline in
sales and losses incurred.
The huge losses incurred and the increase in term liabilities made the
BTFR to come to the conclusion that financial restructuring and infusion of funds
could not revive TELK. The Board directed the Operating Agency, the IDBI to
submit a modified rehabilitation scheme with new proposals treating the original
scheme as cancelled. The operating results and financial position of TELK after
reporting to the BlFR are given in Table 6.4.
Table 6.4:- Operating Results and Financial Position of TELK
(Rs. in Lakhs)
Particulars ( 19961 19971 19981 19991 2000
Financial Position:
(as on 31 March)
Fixed Assets (net)
Current Assets
Current Liabilities
Current Ratio
Tenn Liabilities:
Others
Share Capital
Reserves & Surplus
Debit-Equity Ratio
Accumulated Loss
Networth
Operating Rmults:
(year ended 31 March)
S.V.P
Other lncome
Operating Expenses
Operating Cost Ratio (%)
Operating Profit
Finance Charges
Net Profit (Loss) c/f
1
Source: Annual Reports.
Poor sales and huge losses incurred put the company in severe financial
constraints. To tide over the situation the company borrowed heavily fiom banks
and financial institutions. As on 31 March 2000, term liabilities stood at Rs.6388
lakhs as against Rs.3016 lakhs projected in the rehabilitation scheme. Due to the
increase in borrowed funds the company incurred Rs.959 lakhs in 1998-99 and
Rs.904 lakhs in 1999-00 as interest against Rs.517 lakhs and Rs.476 lakhs
projected in the rehabilitation scheme.
6.2.8 Reasons for the Failure of the Rehabilitation Scheme
The rehabilitation scheme implemented in TELK failed within two years
of its implementation. Poor sales, high cost of raw materials, excess personnel,
low productivity, heavy burden of interest, frequent changes in top management
leading to managerial ineffectiveness and a more competitive scenario with the
entry of multinational companies in the liberdised economy caused the failure of
the schemes.
TELK was established to supply transformers and transformer
components mainly to the State Electricity Boards. It provided a protected market
to the company and hence not much attention was given to modernisation and
diversification. The emergence of free market economy and the entry of
multinational companies like ABB, Siemens, GEC etc, with better technology,
product range, price, service and delivery de-lodged the company from the market.
The rehabilitation scheme also did not pay much attention to the modernisation
and diversification of the company. To survive in the market, the company
accepted tenders at unremunerative rates in line with other successful bidders,
which resulted in huge losses. The financial restructuring and the consequent
reduction in interest charges were not sufficient enough to bring about the desired
improvement in the operating efficiency of the company.
In TELK the cost of production of transformers remained high mainly
due to the increased material cost and employee related expenses. The
rehabilitation scheme projected the material cost at 63.5 percent of sales on an
average. But the actual material cost was 90 percent of sales in 1998-99 and 1999-
00. The management attributed price variance as the main reason for the material
cost variance. The inability of the company to avail of cheap direct import of
materials through duty fiee licence scheme due to scarcity of funds increased the
Draft Modified Rehabilitation Scheme for TELK, P29.
Chapter 6 170
procurement cost of materials considerably6. Local agents of foreign suppliers
supplied materials ofien. The bargaining position of the company was also weak
since suppliers were not paid in time7.
The manpower requirement in TELK was not pruned with the
quantitative and qualitative organisational needs. The creation of too many levels
and designations out of political considerations made TELK overstaffedB. The
value addition per employee as well as production per employee was observed to
be below industry average9. Hence labour cost, as a percentage to total cost
remained high. The rehabilitation scheme projected the employee related
expenses at 17.5 percent of sales on an average whereas the actual expenses were
35 percent of sales in 1998-99 and 1999-00.
The heavy burden of interest on borrowed funds also affected the
performance of the company adversely. In order to ensure the long term viability of
the company the rehabilitation scheme arranged OTS of dues to Financial
Institutions and thereby to reduce the interest charges from Rs.685 lakhs to Rs.483
lakhs between 1996 -97 and 2003-04. But the huge losses of Rs.1090 lakhs and
Rs. 1 883 lakhs incurred in 1998-99 and 1999-00 necessitated huge borrowings
offsetting the benefits of OTS of dues arranged.
Above all TELK being a government company political interference ofien
resulted in delay and bias in decision-making. The management had to take
Drafi Modified Rehabilitation Scheme for TELK, P6.
7
Pressing creditors as on 3 1103/2000amounted to Rs.200 crores.
MIS Jampani and Kotela in their organisational study reported that TELK required
only 744 personnel to attain a sales turnover of Rs.100 crwes and 838 personnel for Rs. 140
crores. But 1533 personnel were employed in TELK.
9~odi f i ed Rehabilitation Scheme reveals that the labour utilisation in TELK was only
33 percent as against the requirement of 65 percent.
decisions according to the whims and fancies of the changing political set up in
the state. This is evident from the fact that Managing Directors were replaced four
times since the company was reported to the BIFR in 1995.
Thus, it is clear that the major weaknesses of TELK lies in managerial
ineffectiveness due to unstable top management, low productivity, high finance
charges and lack of modernisation and diversification to compete with rnulti-
national companies in a liberalised economy. These need to be properly addressed
if the company is to be revived.
6.3 The Steel and Industrial Forgings Limited
The Steel and Industrial Forgings Ltd (SIFL), promoted by the
Government of Kerala as a subsidiary of Steel Industrials (Kerala) Ltd (SILK) is
engaged in the manufacture of quality industrial forgings. The Registered Office
of the Company and the Factory are located at Athani in Trissur District, Kerala
State. The project was completed and commissioned for commercial production in
January 1986 at a cost of Rs.675 lakhs after a time overrun of three years and a
cost overrun of Rs. 122 lakhs. The installed capacity of the factory was 7500
tonnes of steel forgings per annum. SIFL manufactures forged steel parts as per
specific drawings and designs to suit the various needs of industrial units in
Automobiles, Engineering, Heavy Electricals and Textile Machinery. SlFL is an
IS0 9002 company and is best known for its quality products. The main customers
include HAL Bangalore, DCM Patyda and BHEL Bhopal.
SIFL started commercial production in January 1986 and the performance
of the company was not encouraging right from its inception. The inability of the
company to stabilise production due to power shortage and load shedding, labour
problems and marketing constraints resulted in poor operating results and
repetitive losses incurred. The networth of the company was eroded within the
Chapter 6 172
first 1 5 months of its operations. The company made a report to the BIFR in June
1992.
The BIFR declared the SIFL as a 'Sick Industrial Company' within the
meaning of Section 3(I)(o) of SICA, 1985 on 14 October 1992. The Industrial
Development Bank of India (IDBI) was appointed as the Operating Agency to
formulate a rehabilitation scheme for the company. The operating results of the
SIFL from its inception up to 3 1 March 1 992 are given in Table 6.5.
Table 6.5:- Operating Results of SIFL from 1985-86 to 1991-92
source: Annual Reports.
SIFL could not earn profit in any financial year in spite of the increase in
sales from Rs.73 lakhs in 1985-86 to Rs.955.20 lakhs in 1991 -92. The sustained
losses incurred put the company in deep financial crisis and the company
borrowed heavily from Banks and Financial Institutions. The amount of term
liabilities increased more than three times between 1985-86 and 1991-92. This
adversely affected the profitability of the company. As on 31-03-1992 the
accumulated losses stood at Rs.968.01 lakhs as against the share capital and free
reserves of Rs.460 lakhs indicating a negative networth of Rs.526.28 I&s.
(Rs, in lakhs)
Year Sales Net Profit
(Loss)
Accumulated
Loss
Networth Term
Loans
Chapter 6 173
The IDBI submitted a draft rehabilitation scheme to the BIFR in
~ovkmber 1992. But it could not be adopted since the proposal for the fresh
infusion of Rs. 590 lakhs by the promoters was not acceptable to the Government
of Kerala. But it welcomed the induction of private promoters by disinvesting its
shareholdings in full or in part. As nobody came forward to takeover SIFL, the
BIFR directed the Operating Agency to prepare a fresh rehabilitation scheme for
the company. The revised rehabilitation scheme was sanctioned by the BIFR in
October 1995 after necessary approval from the Government of Kerala. Thus it
took more than three years to formulate a rehabilitation scheme in the case of the
SIFL.
6.3.1 Rehabilitation Scheme
The rehabilitation scheme sanctioned aimed at making the operations of
the SIFL viable by adopting a two-pronged approach; by increasing sales and by
reducing the burden of interest. In order to increase sales the scheme proposed a
capacity utilisation of 60 percent from 1995-96 and to reduce frnance charges, One
Time Settlement (OTS) of dues to Financial Institutions was twanged. The wst of
the scheme and the means of financing are given in Table 6.6.
Table 6.6:- Cost of the Scheme and Means of Financing
OTS of dues Internal a c c d s 350.00
(Rs. in lakhs)
Total 1 850.03 1 Total 1 850.03 1
I I I I
Cost of the scheme
Capital expenditure
Means of financing
Loans from Government
Amount
350.00
Amount
500.03
In order to increase the scale of operation and sales, the scheme proposed
a capital expenditure of Rs.350 lakhs in plant and machinery and the cost of OTS
of dues to the financial institutions were estimated at Rs. 500.03 lakhs. OTS of
dues was arranged with fund support from the Government of Kerala and internal
accruals were the source of finance for the capital expenditure.
6.3.2 Relief and Concessions
6.3.2.1 IDBI and ICICI
To accept principal amount of term loans amounting to Rs.500.03 lakhs
from Govenunent of Kerala, waiving interest accrued including funded interest
term loans as on 3 1-03-1995 (cut off date) estimated to be Rs.634 lakhs.
6.3.2.2 IFCI
To waive all penal charges and liquidated damages as on 3 1-03-1 995 and
to accept principal term loan of Rs.177 lakhs in 16 quarterly instalments
commencing from April 1998 after amortisation of three years bearing interest two
percent below the document rate. To fund interest accrued and due up to 31-03-
1996. This amount (Rs.264 lakhs) together with existing Funded Interest Term
Loans (Rs.94 lakhs) aggregating to Rs.358 Iakhs to be accepted for payment in 26
quarterly instalments commencing from April 1998 after amortisation of three
years bearing interest @ 13 -50 percent per annum.
6.3.2.3 SBT
To accept repayment of medium term loan of Rs.48 lakhs during a period
of five years (Rs. 9 lakhs each in 1994-95 and 1995-96, Rs. 10 lakhs in 1996-97,
1997-98 and 1998-99) at interest rate of 15 percent per mu m. To provide need
based working capital on the guarantee of Government of Kerala @ 15 percent per
m u m from time to time.
Cash infusion of Rs. 100 lakhs for holding on operation as interest free
unsecured loan/equity and Rs.500.03 lakhs by way of interest free unsecured
loadequity to pay off dues to the IDBI and the ICICI. The Industrial Development
Chapter 6 175
Fund (IDF) loan of Rs.50 lakhs and interest thereon to be converted into equity.
~uaknt ee commission to be waived fully. Sales tax up to 3 1-03-1995 to be
deferred and funded without interest, to be repaid in 36 instalments fkom 01-04-
1996. Exemption on electricity duty (10 Ps. per unit) for five years and exemption
from power cut during the rehabilitation period.
6.3.2.5 General Conditions
The company shall constitute a management committee to monitor the
working of the rehabilitation scheme and to review it on a monthly basis. The
committee shall exclusively monitor all operations of the company and the
implementation of the rehabilitation scheme. The BIFR Special Director,
representatives from the IFCI and the Bank shall be included in the committee. To
appoint a Chartered Accountant as concurrent auditor who shall report to the
Government of Kerala, management, IFCI and the Bank.
6.3.3 Projected Financial Position and Operating Results
The rehabilitation scheme envisaged making the operations of the
company viable by increasing sales and reducing the burden of interest. To
increase sales the scheme projected a production target of 4500 tons per amurn
with a capacity utilisation of 60 percent from 1995-96 onwards. For reducing the
interest burden the scheme proposed One Time Settlement (OTS) of dues to the
IDBI and the ICICI amounting to Rs985 lakhs by paying Rs.500.03 lakhs with
fund support from the Government of Kerala. It aimed at reducing the amount of
term loans nearly to one third &om Rs. 1549 lakhs as on 3 1 March 1994 to Rs.554
lakhs as on 3 1 March 1995 and to reduce the interest charges proportionately. The
scheme also proposed to reschedule the dues to the IFCI after funding of interest
so as to pay them off fully by 200 1-02.
The rehabilitation scheme projected the fmancial position and operating
results of the SIFL for a period of eight years from 1994-95 to 2001-02 after
incorporating the financial restructuring pattern. The scheme projected a sales
target of Rs, 1443 lakhs in 1994-95, Rs. 1800 lakhs in 1995-96, Rs. 1 890 lakhs in
Chapter 6 1 76
1996-97 and thereafter to remain at the same level up to 2001-02. The financial
position and operating results of SIFL projected in the rehabilitation scheme are
given in Table 6.7.
Table 6.7:- Projected Financial Position and Operating Results of SIFL
/ ~articulars I I994 1 1995 1
Financial Position:
( as ml l Mor ch) 1 1 1
1
Fixed Assets (net) / 8 1 7 7751
Current Assets 756 915
Current Liabilities 679 725
Current Ratio 1 . 1 1 1.26
Term Liabilities / 1549 1 554 1
( Share Capital ( 450 ( 542 1
Reserves & Surplus 10 10
Debit-Equity Ratio 3.37 1.00
Accumulated Loss 1429 942
Operating R~ u l t s :
(year ended
3 1 March)
Capacity Utilisation
Production (MT)
[ sales (net) 1 1 1443 1
Operating Profit
Interest
Depreciation
/
Nn Profit (Loss)
1 1 (8) 1
I i
Source: Rehabilitation Scheme.
Table 6.7 exhibits that the rehabilitation scheme aimed at making the
operations of the company profitable in 1995-96 and the networth positive in
1998-99.
Chupter 6
6.3.4 Level of Implementation of the Rehabilitation Scheme
SIFL being a Government company, the Government of Kerala took
active interest in reviving the company. It made available Rs.450 lakhs in March
1995 to arrange OTS of dues to the IDBI and the ICICI. Though not provided in
the rehabilitation scheme, the company also manged OTS of dues to the IFCI for
which the Government additionally provided Rs.177 lakhs in March 1997. This
helped the company to redeem the entire amount of term loans and to relieve the
company from the burden of interest.
All relief and concessions envisaged from the Financial Institutions,
SBT, KSEB and the Government of Kerala were sanctioned in time and was
incorporated in the accounts to set' off the amount of loss accumulated.
Accordingly Rs.670.08 lakhs ' O and Rs.226.14 lakfis were incorporated in the
accounts of 1995-96 and 1996-97.
The implementation of the rehabilitation scheme was not without defects.
A capital investment of Rs.350 lakhs in plant and machinery was not made.
Similarly the Government could not exempt the company from power cut due to
the acute shortage of power in the state in mid 90s.
' O Rehabilitation Package Account 1 995-96:
Interest and Funded Interest to Financial Institutions:
IDBI, ICICI (up to 31 -03.95) Rs. 588.09 lakhs
lFCI (up to 3 1.03.1996) Rs. 26.02 Iakhs
Interest SET ( 1 995-96) Rs 4.86 lakhs
Electricity duty (KSEB 1995-96) Rs. 3.54 lakhs
Guarantee commission (up to 3 1 .03.1992) Rs. 47.57 Iakhs
Total Us. 670.08 lakhs
11
Rehabilitation Package and OTS with IFCf adj. Account 1996-97:
IFCI (up to 3 1.03.1996)
Rs. 226.14 lakhs
Chapter 6
6.3.5 Financial Position and Operating Results of SIFL
In the case of SIFL it took more than thee years to evolve a consensus on
the rehabilitation scheme. Due to this delay the performance of the company
continued to be poor in 1992-93 and 1993-94, which resulted in losses of Rs.2 12
lakhs and Rs.295 lakhs respectively during the same periods. The company earned
a nominal profit of Rs.9 lakhs in 1994-95. The financial position and operating
results of the SIFL since 1992-93 are given in Table 6.8.
Table 6.8:- Financial Position and Operating Results of SIFL
Particulars
Financial Position:
(as on 3 1 March)
Fixed Assets (Net)
Current Assets
Current Liabilities
Current Ratio
Shareholders' funds:
Share Capital
Reserves & Surplus
Term Liabilities
Debit-Equity Ratio
Accumulated Loss
Networth
Operating Results:
(year ended 3 1 March)
S.V.P
Other Income
Total Income
Operating Expenses
Operating Profit
Finance Charges
Net Profit (Loss) clf
Source: Rehabilitation scheme,
Chapter 6
The table shows that the implementatidn of the rehabilitation scheme
helped to improve the performance of the company substantially. Though the
company could not achieve the projected sates target of Rs. 1890 lakhs from 1996-
97 onwards, the actual profits earned exceeded the projected targets. The
company earned net profits of Rs.98 lakhs Rs. 194 lakhs, Rs.184 lakhs and Rs.131
lakhs during 1995-96, 1996-97, 1 997-98 and 1 998-99 against the projected profit
targets of Rs.90 lakhs, Rs. 157 lakhs, Rs. 132 lakhs and Rs. 1 23 Iakhs respectively
during the same period. Figure 6.2 is the graphical representation of the projected
and actual sales and profit earned by the SIFL.
Fig: 6.2:- Projected and Actual sales and Profit of SIFL
Year
I
The graphs in the Fig. 6.2 exhibit that the actual profit earned by SIFL
was higher than the projected profit targets even though the actual sales were less
than the sales targets projected in the rehabilitation scheme.
Chaprer 6
The sharp reduction in finance charges and operating expenses helped the
company to attain better profitability. One Time Settlement (OTS) of dues to the
IDBI, XFCI and the ICICl helped the company reduce the finance charges ftorn
Rs.296 lakhs in 1993-94 to Rs.48 laws in 1 998-99. The Operating Cost ~ a t i o ' ~
also declined sharply from 101.17 percent to 90.09 percent during the same
period.
In SIFL the rehabilitation scheme implemented delivered fruitful results
and the company earned profits continuously since 1995-96. The networth of the
company became positive in 1996-97 two years ahead of the schedule and the
amount of accumulated losses which stood at Rs.149 1 lakhs as on 3 1 March 1995
got reduced to Rs.20 lakhs as on 3 1 March 1999. The BIFR by an order in August
2000 put the company out of the purview of the BIFR.
In SIFL the heavy burden of interest on borrowed h d s was the main
reason for the poor operating results. One Time Settlement (OTS) of dues to the
IDBI, ICICI and the TFCI helped the company to redeem the entire amount of term
liabilities and to relieve the company from the heavy burden of interest. SIFL
being a government company, the Government of Kerala took active interest in
rehabilitating the company and provided the required finance to arrange OTS of
dues to the financial institutions. But for the whole hearted support of the
Government the rehabilitation scheme in SIFL would not have become a success.
Reduction in operating expenses and improvement in sales also helped the
company to improve its profitability to a great extent.
''operating Cost Ratio = Cost of Goods Sold + Opemting Expenses I Net Sales 100
Chapter 6
6.4 The Keraia Minerals and Metals Limited
The Kera3a Minerals and Metals Limited (formerly M/ S F.X Perira and
Sons (P) Ltd) is considered as the pioneers in mineral separation industry in
Kerala. The company is engaged in mining and separating the mineral sand into
various constituents. It is manufacturing titanium dioxide pigments and titanium
sponge metal using Ilmenite and Rutile separated from beach sand. In 1972 M/S
F.X Perira and Sons (P) Ltd) was taken over by the Government of Kerala and
renamed it as the Kerala Minerals and Metals Ltd (KMML).
KMML is wholly owned by the Government of Kerala and it has
facilities at Chavara, Kollam District for separating minerals such as Ilmenite
(2200 tpa) and Rutile (2000 tpa) from beach sand and for manufacturing 22000 tpa
of rutile grade titanium dioxide pigment. The company has two plants viz.,
Titanium Pigmentation Plant and Mineral Separation Plant for the purpose. The
construction of the Titanium Pigmentation Plant was started in 1979 at an
estimated cost of Rs.65 crores. The implementation of the project was delayed for
more than three yem which resulted in the increase of the total cost of the project
to Rs.105 crores. Though the new project started commercial production in
January 1985, the operation could not be stabilised for over next five years on
account of a host of problems relating to technology assimilation, management
and organisational deficiencies. As a result till August 1988, the KMML was
operating at below 15 percent of its installed capacity and incurred huge losses
continuously from 1981-82. On account of the KMML's importance to the
economy in general and its huge size Institutions and Banks sanctioned a package
of relief and concessions in July 1984, but it did not improve the operating results
of the company. Consequently, the revival scheme was modified in October 1989.
The modified scheme rescheduled the term loans after funding of interest up to 3 1
March 1988 so as to be repayable in 24 quarterly instalments from December
1989, waiving penal interest and liquidated damages up to 3 1 March 1988. The
Chapter 6 182
implementation of the modified rehabilitation scheme also could not bring about
the desired results and the performance of the company continued to languish and
was reported to the BIFR in July 1 992. The operating result of KMML from 1982-
83 to 1 99 1-92 is given in Table 6.9.
Table 6.9:- Operating Results of KMML
Net Loss
I:
(Rs. in Iakhs
Table 6.9 points out that even aRer the increase in sales from Rs. 57 lakhs
to Rs. 8322 lalchs between 1982-83 and 1991-92, the company could not make
profit in any financial year. As on 3 1 March 1992 the accumulated losses stood at
Rs.9922 lakhs against the share capital, Rs.3093 lakhs and fiee reserves, Rs.106
lakhs indicating a negative networth of Rs.6726 lakhs.
The BIFR in its hearing held on 8 February 1993 declared KMML as a
'Sick Industrial Company' within the meaning of section 3(1)(o) of SICA, 1985
after taking into account the past accumulated losses- and other factors. The
Industrial Development Bank of India (IDBI) was appointed as the Operating
Chapter 6 183
Agency to formulate a rehabilitation scheme based on techno-economic study.
IDBI formulated a rehabilitation scheme with 3 1 March 1994 as the cut off date
for its implementation. The BIFR sanctioned the rehabilitation scheme on 1" June
1994 after arriving at a consensus among the Participating Agencies.
6.4.1 Reba bilitation Scheme
viable by increasing sales, reducing operating expenses and interest cost. To
reduce interest, the scheme proposed reduction in debt with a financial
restructuring of the company by including waiver of dues, conversion of debt into
equity and reduction in interest rates. The scheme envisaged a sacrifice of Rs. 1 246
lakhs from Institutions and Banks and Rs.542 lakhs from the Government of
Kerala. The scheme proposed the appointment of a full time Managing Director
and professionally qualified personnel in key managerial positions. The scheme
suggested for the stability in management and setting up of an audit committee.
i. To waive guarantee commission due and forego the same in future.
ii. To waive interest accrued on its unsecured loans and accept repayment of the
latter on an interest free basis after repayment of dues to hstitutionslBanks.
iii. To defer sales tax for five years from the F.Y 1994-95 on an interest free basis,
repayable over a period of three years from the F.Y 2000-0 1 onwards.
iv. To ensure the appointment of a full time Managing Director with a minimum
tenure of two years.
v. To induct independent professionals with a track record in financelmarketing
on the KMML's Board of Directors and not to withdraw/terminate the tenure
of any director on company's Board without the prior concurrence of the
BIFWIDBI during rehabilitation period.
vi. To reconstitute the Board of Directors of the company by inducting nominees
of the TDBIIIFCIISBIILIC and the BIFR. The total strength of the Board of
Directors including the Managing Director would be restricted to twelve only.
vii. To persuade Government of India to put titanium dioxide in the
negativelrestricted list for imports, highlighting the company's capacity to
meet the entire demand for titanium dioxide in India both quantitatively and
qualitatively.
viii. To reconstitute the management committee by inducting the nominees of the
IDBIlSBIlSpecial Director, the BIFR and the Managing Director of the
company. Similarly audit committee would be reconstituted to the satisfaction
of the financial institutionshmks.
6.4.2.2 Financial Institutions
i. To waive penal interest and liquidated damages up to 3 1 March 1993.
ii. To fund compound interest accrued up to 31 March 1993 for a period of five
years from cut off date on an interest free basis. The said funded interest to
carry interest 017.5 percent per m u m from 1 April 1998 and to be repaid in
eight quarterly instalments thereafter.
iii. To fund remaining overdue interest at 13.5 percent per annurn w.e.f., lStApril
1993.
iv. To reduce interest on principal outstanding by two percent from the existing
document rate subject to floor rate at 13.5 percent per annum w.e.f., 1 April
1993 repayable in 28 quarterly instalments from 1 Apri 1 1993.
v. Existing funded interest to be rescheduled and repayable concurrently with
principal in 28 quarterly instslments form 1'' April 1993 carrying existing
interest rate.
i. To waive penal interest and liquidated damages up to 3 1 March 1993
ii. To fund overdue compound interest, if any for a period of five years from cut
off date on an interest free basis. The said funded interest to carry interest
B17.5 percent per annum from 1" April 1998 &d to be repaid in eight
quarterly instalments thereafter.
iii. To fund remaining overdue interest at 6.5 percent below prevailing minimum
lending rate w.e.f., 1 April 1993 strictly as per existing RBI guidelines.
iv. To reduce interest on principal outstanding by two percent from the existing
document rate fiom w.e.f., 1'' April 1993 strictly as per existing RBI
guidelines.
v. Existing funded interest if any to be rescheduled and repayable in 28 quarterly
instalments from 1 April 1993 carrying prevailing interest rates.
vi. To grant need based working capital facilities at minimum lending rate
prescribed by the RBI.
6.4.2.4 Workers
i. To enter into a fresh long-term agreement with management for a period of
eight years in accordance with the package evolved by the Government of
KeraIa for wage increase.
ii, To desist from going on strikejgo-slow etc during the entire rehabilitation
period.
iii. To co-operate with the management in all reasonable measures for effecting
economy in day-to day running of the plant.
6.4.3 Projected Financial Position and Operating Results of KMML
viable by increasing sales and reducing the operating expenses and interest cost.
The scheme projected an annual sales target of Rs. 10290 lakhs in 1993-94 and to
remain at the same level till 2002-03. The rehabilitation scheme also envisaged
gradual repayment of the entire amount of term liabilities by 1999-00 so as to
reduce the burden of inertest and enhance the profitability of the company.
The scheme projected the operating results and financial position of
KMML for a period of 10 years from 1993-94 to 2002-03 and they are given in
Table 6.10
Table 6.10:- Projected Operating Results and Financial Position of KMML
(Rs. in Iakhs)
Particulars 1 1993
Financial Position:
(as on 31 Marc&
Fixed Assets (net)
Current Assets
Current Liabilities
S k Capital
Reserves & Surplus
1 Term Liabilities
Accumulated Losses
Networt h
Operating resub:
(year ended 3 1 Adarch)
S v P.
Operating Expenses
Operating Profit (Loss)
finance Charges
Net Profit (Loss)
Chapter 6 187
Table 6.10 shows that the successful implementation of the rehabilitation
scheme aimed at making the operations of the company profitable in 1993-94, the
networth positive in 1996-97 and to wipe off the entire amount of accumulated
losses by 1 997-98.
In KMML the rehabilitation scheme was successfully implemented with
the co-operation of the financial institutions, banks and the Government of Kerala.
The financial institutions and banks provided a concession of Rs.335 lakhs by
waiving penal interest and liquidated damages and arranged interest free funding
of compound interest amounting to Rs.911 lakhs. The Government of Kerala
provided concessions amounting to Rs. 5 42 lakhs waiving guarantee commission
and interest. The company incorporated relieE/concessions amounting to Rs.877
lakhs in the books of account in 1992-93. The Government of Kerala succeeded in
persuading the Central Government to include titanium dioxide in the
negativelrestricted list of imports and it helped the KMML to enjoy a protected
domestic market for the titanium dioxide.
6.4.5 Financial Position and Operating Results of KMML
The BIFR sanctioned the rehabilitation scheme of KMML on IS' June
I994 and it was implemented with immediate effect. The decision of the Union
Government to include titanium dioxide in the restricted list of import in February
1993 resulted in a spurt in its demand in the domestic market and it helped KMML
to increase sales and to make its operations profitable in 1993-94 itself. During
1993-94 sales increased nearly by 31 percent to Rs.12400 lakhs compared to
Rs.9548 lakhs in 1992-93 and the company earned a net profit of Rs.2014 lakhs.
The financial position and operating results of KMML after its reference to the
BIFR are given in Table 6.1 1.
Chapter 6
Table 6.1 1 :- Financial Positic
Particulars
Financial Position:
(as on 3 1 March)
Fixed Assets(net)
Current Assets
Current Liabilities
Current Ratio
Loan Funds
Shareholders' funds:
Share Capital
Reserves & Surplus
Debit-Equity Ratio
Accumulated Losses
Networth
Operating Rmults:
( year ended 3 1 March)
S. V. P
Other Income
Operating Expenses
Finance Charges
Operating Profi t(Loss)
I 1
n and Operating Results of KMML
Rs. in lakhs
The sustained demand for titanium dioxide in the domestic market
continued in the subsequent years also. This helped KMML to attain a better
performance than the one projected in the rehabilitation scheme. The company
attained a sales turnover of Rs.16337 lakhs in 1994-95 and Rs.17377 lakhs in
1995-96 and earned a net profit of Rs.4216 l&s and Rs.6230 lakhs respectively
during the same period. Figure 6.3 is the graphical representation of the projected
and actual sales and profitlloss of KMML.
Fig: 6.3:- Projected and ~ct ual 'Sales and Profit of KMML
20000
Year
I
- Projected Sales - Projected Profit -Actual Sales -Actual profit1
The graphs in the Fig. 6.3 exhibit that the actua! sales and profit of
KMML between 1993-94 and 1995-96 was much higher than the projected sales
and profit.
The rapid increase in sales turnover after the inclusion of titanium dioxide
in the restricted list of imports helped the KMML to earn profit continuously from
1993-94 and to wipe off the entire amount of accumulated losses by 1995-96, three
years ahead of the schedule specified in the rehabilitation scheme. The company was
taken out of the purview of the BlFR in December 1996.
The significant reduction in operating expenses and interest charges also
helped the KMML to improve its operating efficiency and profitability. The
decline in Operating Cost ~a t i o" fiom 85.88 percent in 1992-93 to 69.05 percent
in 1995-96 and the sharp reduction in finance charges fi-om Rs.2235 lakhs to
13@erating Cost FWio = Cost of Goods Sold + Operating Expenses / Net Sales * 100.
Chapter 6 1 90
Rs.579 lakhs during the same period helped to improve the operating efficiency
and profitability of the company. In order to reduce interest charges the company
redeemed loan funds amounting to Rs. 1 5 14 1 lakhs between 1993-94 and 1995-96.
Consequently the Debt-Equity ~ a t i o l ~ declined sharply from 4.80 to 0.04 during
the same period.
In KMML the rehabilitation scheme was implemented w.e.f., 1'' June
1994. But the operations of the company became profitable in 1993-94 itself. This
was because of the policy decision of the Central Government to include titanium
dioxide in the restricted list of imports in February 1993. It resulted in a sudden
spurt in the demand of titanium dioxide in the domestic market, which helped
KMML to increase sales and make its operations profitable. The actual sales of the
company exceeded the sales targets envisaged in the rehabilitation scheme. It
enabled the company to wipe off the entire amount of accumulated losses three
years ahead of the schedule specified in the rehabilitation scheme. The
implementation of the rehabilitation scheme and the role of the Operating Agency
had only a limited role in making the working of the company successful.
14
Debt Equity Ratio = Long Term Debt I Shareholders' Funds.
Chapter 6
6.5 The Elcera Substrates Limited
The Elcera Substrates Ltd (ESL) was promoted in 1985 in the joint sector
by a group of non-resident Indians led by Sqn. Ldr. K Ramakrishnan, an ex-
serviceman and technocrat and the Kerala State Electronics Development
Corporation (KELTRON) in technical and fmmcial collaboration with Y.S Inc;
Japan. The Registered Office of the Company is situated at Palakkad and the
Factory at Perinthalmanna in Malappuram District, Kerala State. The company
manufactures ceramic substrates from carbon and metal film resistors. The
installed capacity of the factory was 2000 million pieces per mu m. The cost of
the project was originally estimated at Rs.250 lakhs, which escalated to Rs.290
lakhs due to appreciation in the value of Yen. The company undertook an
expansion scheme in 1994-95 at a cost of Rs.126 lakhs, which increased the
installed capacity to 5400 million pieces per mu m.
ESL started its commercial production in July 1987 and the company had
to face a number of problems since then. The capacity utilisation in the initial
years remained low, ranging fkom 15 to 30 percent due to the difficulties in
importing raw materials like Aluminium Oxide and Ball Clay fkom Japan. The
initial low level capacity utilisation, high cost of imported raw materials and high
interest burden on account of escalation in rupee equivalent of foreign currency
loan fkom Rs.72 lakhs in 1986 to Rs.320 l abs in 1995 (exchange rate of rupee
declined from Re. 1 = 9.67 Yen in 1987 to Re. 1 = 2.81 Yen in 1995), increase in
rupee equivalent of technical know-how fee from Rs.86 takhs in I992 to Rs.113
lakhs in 1994, low export earnings despite high volume of exports, reduction in
selling price to match with the landed cost of imported cores and inadequate
working capital facilities resulted in ESL piling up losses to the tune of Rs.239
lakhs as on 31 March 1994. The Board of Directors made a report to the BIFR in
June 1994. The operating results of the ESL from 1989-90 to 1993-94 are given
in Table 6.12
Chapter 6
Tables 6.12:- Operating Results of ESL
The table shows that the total amount of accumulated losses (including
deferred revenue expenditure of Rs.3 7 lakhs) as on 3 1 March 1994 stood at Rs.276
lakhs as against paid up capital and free reserves of Rs.120 lakhs, making a
negative networth of Rs. 156 lakhs.
The BIFR in its first hearing held on 10 October1 994 declared ESL as a
'Sick Industrial Company' under section 3(1)(0) of SICA, 1985 and directed the
KSIDC to draw up a rehabilitation scheme witb the concurrence of all
Participating Agencies. Since no consensus could be anived at the meeting
convened by the KSIDC the matter was reported to the BIFR. The Board at its
hearing held on 8 February 1995 appointed the Industrial Reconstruction Bank of
India (IRBI) as the Operating Agency to examine the viability of the company and
formulate a rehabilitation scheme for the company.
Year
1989-90
1990-9 1
1 99 1 -92
1992-93
1993-94
'fie IRBI in consultation with other financial institutions and banks
formulated a rehabilitation scheme at a cost of Rs.77 lakhs. To ensure easy
Net
Profit
(Loss)
(33)
(28)
( 5 1)
(27)
(22)
Sales
69
84
16 1
1 90
206
Accumulated
Loss
1 1 1
138
1 90
217
239
Networth
+ 1
-24
- 100
- 1 30
-156
(Rs. in lakhs)
Long Term
Loan
278
323
518
5 73
637
Interest
29
34
47
54
65
Chapter 6 193
repayment the scheme rescheduled the term loans after funding of interest with
necessary relief and concessions. The BIFR sanctioned the scheme in April 1996.
The cost of the scheme and means of financing envisaged in the rehabilitation
scheme are given in Table 6.13.
Table 6.13:- Cost of the Scheme and Means of Financing
I Capital Expenditure 1 40 1 Additional Equity
1 65
( ~5, - i n lakhs)
Total / 77 1
I
Cost of the scheme Means of financing Rs.
Sales Tax Loan
I
Rs.
Subsidy for DG set and
~ :::chinev
The rehabilitation scheme envisaged a capital expenditure of Rs. 40 Iakhs
and provided Rs.37 lakhs as margin money. To finance a major portion of the cost,
the scheme proposed to raise Rs.65 lakhs by issuing equity share capital.
6
6
The rehabilitation scheme could not be implemented as per schedule due
to the failure of the promoters to bring additional funds as agreed. Hence the
BIFR directed the Operating Agency in July 1997 to submit revised proposals for
the rehabilitation of the ESL.
The Operating Agency modified the rehabilitation scheme and it
proposed to make the operations of the company profitable by increasing sales and
enhancing the profitability by reducing the interest charges. The modified
rehabilitation scheme proposed the marketing of a new product, 'bio-egg kits' to
Chapter 6 194
be supplied by the Japanese collaborators. The Board sanctioned the modified
rehabilitation scheme in May 1998.
The modified rehabilitation scheme aimed at making the operations of the
company viable by increasing sales and reducing the interest charges. The
rehabilitation scheme projected a sales target of Rs.311 lakhs in 1997-98 and to
increase it gradually to Rs.667 lakhs by 2000-01 and to stay at the same position
up to 2004-05. It also aimed at making the company profitable in 1998-99. The
modified scheme projected the operating results and financial position of the
company for a period of eight years form 1997-98 to 2004-05 and they are given
in Table 6.14.
Table 6.14:- Projected Financial Position and Operating Results of ESt
(Rs. in lakhs
Financial Position:
(as on 31 March)
Fixed Assets
' Cumnt Assets
Current Liabilities
1 Term Liabilities
Share Capital
Reserves & Surplus
Accumulated Loss
Networth
Operating Results:
(year ended3 1 March)
S.V.P
Operating Expenses
Interest Charges
Profit (Loss) for the year
I I
Chapter 6
profitable in 1998-99, the networth positive in 2001 -02 and to wipe off the entire
amount of accumulated losses by 2002-03. To reduce interest charges the scheme
proposed gradual repayment of the entire amount of term liabilities by 2004-05.
The rehabilitation scheme implemented in ESL in April 1996 was
modified in May 1998 by deferring the payment of interest and rescheduling term
loans keeping alive the relief and concessions from fmancial institutions and banks
proposed in the original rehabilitation scheme,
6.5.1.1 KSIDC
i. To waive penal interest (Rs. 12 lakhs) charged above the document rate till 3 2
March 1995.
i i . To reduce the interest rate for the rupee component of the foreign currency
loan to 14 percent per annurn.
iii. To charge interest on additional rupee loan @ 10.5 percent only as against 12.5
percent
iv. To treat the interest arrears up to 31.03.1995 (estimated at Rs.101 lakhs after
waiving Rs.40.22 lakhs being penal interest) as funded interest-carrying
interest at 10 percent per m u m and made payable in 12 quarterly instalrnents
beginning in April 1999.
v. To reschedule term loans so as to commence repayments from I April 2000 to
be completed by 3 1.03.2005.
vi. To defer payment of interest on term loans from 0 1.04.1995 to 3 1.03.1998 and
made payable in 16 quarterly instalments beginning in April 1998.
6.5.1.2 KFC
i. To waive penal interest (estimated at Rs.12 lakhs) charged up to 3 1 March
1995.
Chapter 6 1 96
ii. To reduce the rate of interest on existing term loans of Rs.60 lakhs by two
percent fiom the document rate i.e. @ 10.5 percent per annurn.
iii. To treat the interest arrears (estimated at Rs.15 lakhs) up to 31 March 1995 as
funded interest carrying interest @ 10 percent per m u m and made payable in
1 2 quarterly instalments beginning in April 1999.
iv. To reschedule term loans so as to commence repayments from 1 April 2002 to
be completed by 3 I March 2005.
6.5.1.3 SBI
i. To waive penal interest charged up to 3 1 March 1995 (estimated at Rs.8 lakhs)
over and above the document rate of 12.5 percent.
ii. To treat the arrears of interest (estimated at Rs.23 lakhs) as funded interest
term loan carrying interest @ 10 percent per annurn to be repaid in 12 quarterly
instalments fiom April 1999.
iii. To reduce the interest on normal loan to 10.5 percent.
iv. Defer payment of interest on term loans from 1 April 1995 to 31 March 1998
and made payable in 16 quarterly instalments beginning in April 1998.
v. To reschedule term loans so as to commence repayment from 1 April 2000 to
be completed by 3 1 March 2005.
6.5.1.4 IDBI
To waive penal interest (estimated at Rs.29 lakhs) charged over and
above the applicable interest rates till 31 March 1995 and adjust the amount
against the dues of KSIDC on account of ESL
Defer the sales tax loan for a period of five years at an interest rate of 12.5
percent per mu m and to sanction subsidy of Rs.6 lakhs for D.G Set/Plant and
Machinery already acquired.
i. To contribute Rs.65 lakhs as equity within a period of two years (Rs.55 Iakhs
during 1995-96 and Rs.10 lakhs during 1996-97). The moditied scheme
reduced the promoter's contribution to Rs.50 lakhs.
Chapter 6
ii. Foreign collaborations to agree
for adjustment of the amount of Rs.25 lakhs payable to them by ESL
against the dues from ESL on account of deferred payment of credit.
to write off technical know-how fee of 16 000 000 YEN.
to supply raw materials, if needed, at concessional price during
rehabilitation period.
to guarantee the projected cash flow and meet the short fall if any in the
resources.
6.5.2 Progress in Implementing the Rehabilitation Scheme
In ESL the rehabilitation scheme sanctioned in April 1996 could not be
implemented as scheduled, Consequently, it was modified and implemented in
May 1998. The status of implementation of the original scheme and the modified
proposals as given in the Operating Agency Report submitted to the BIFR in
January 2000 is given in Table 6.15.
Table 6.15:- Status Report of the Rehabilitation Scheme
Technical Know-how Fee
Margin Money
Total
B. Means of Finance
Additional Equity
Subsidy for DG set and Plant and
Machinery
Sales Tax Loan
(Rs. in lakhs)
Particulars
Cash Accruals
Total
As per
Original
Scheme
I
20
76
1
--
I 1.50
As per
Modified
Scheme
A. Cost of the Scheme:
Capital Expenditure
0
12
Source: Operating Agency Report, January 2000.
Incurred
up to
30.09.1999
40 50
Chapter 6
Table 6.15 shows that the company could not make much progress in
implementing the modified rehabilitation scheme ,also. A major portion of the
proposals of the scheme remains to be fulfilled. Out of the promoters contribution
of Rs.50 lakhs only Rs. 12 lakhs have been contributed so far. The company
incurred a capital expenditure of only Rs. 1 1.50 lakhs out of Rs.50 lakhs envisaged
in the scheme.
6.5.3 Financial Position and Operating Results of ESL
ESL was reported to the BIFR in Jme 1994 and a rehabilitation scheme
was sanctioned in April 1996. The sanctioned rehabilitation scheme could not be
implemented as scheduled and it was modified in May 1998. Even the modified
scheme could not be implemented properly. Due to the delay in implementing the
rehabilitation scheme, the performance of the company continued to languish and
the company incurred sustained losses year after year. Figure 6.4 shows the sales
and profifloss projected in the rehabilitation scheme and the actual sales and
profitlloss earned between 1998-99 and 1 999-00.
800
,Fig: 6.4:- Projected and Actual Sales and Profit/Loss of ESL
700 -
.C 600 -
I
-200 - -
Year
-
-
Chapter 6 199
Sales declined gradually from Rs.225 lakhs to Rs.76 lakhs between 1994-
95 and 1999-00 and the company incurred a huge loss of Rs. 896 lakhs during the
same period. The downward slope of the graphs exhibit the sharp decline in sales
and the increase in operating losses incurred. The operating results and financial
position of the ESL after reporting to the BIFR are given in Table 6.16.
Table 6.16:- Financial Position and Operating Results of ESL
Particulars
Financial Position:
(as on 3 1 March)
Fixed Assets(net)
Current Assets
Current Liabilities
Current Ratio
Shareholders' Funds:
Share Capital
Reserves & Surplus
Term Liabilities
Debit-Equity Ratio
Accumulated Losses
Networth
Operating Results:
{year ended 3 1 March)
S.V.P
Other Income
Aggregate Income
Operating Expenses
Finance Charges
Net Profit (Loss) df
Source: Annual reports.
The main reason for the sharp decline in sales was the availability of
imported ceramic cores at a price lower than the domestic price due to the
Chapter 6 200
liberalisation of the economy in the 90s. The sharp increase in the cost of
production due to the increase in the imported cost of raw materials, wage rates,
power tariff and other expenses also affected the performance of the company.
The steep increase in the Operating Cost ~ a t i o ' ~ from 93.3 percent in 1994-95 to
182.9 percent in 1999-00 reflects the rising trend in the cost of production.
The poor operating results and huge losses incurred put the company in
deep financial crisis and to tide over the situation heavy borrowings were made
from banks and financial institutions. The increase in the Debt-Equity ~ a t i o ' ~
from 3.9 in 1994-95 to 6.6 in 1999-00 reflects the trend in the increased use of
borrowed funds. Increased use of borrowed funds increased the amount of interest
charges from h . 6 8 lakhs to Rs.161 lakhs between 1994-95 and 1999-00.
Due to the poor operating results and heavy losses incurred by the ESL
the BIFR in its review meeting held on 12 January 2000 came to the conclusion
that the Rehabilitation scheme sanctioned was not implemented properly and it
directed the Operating Agency to explore the chances of rehabilitation of ESL
with a change in management treating the rehabilitation scheme as failed.
In the case of ESL the rehabilitation scheme sanctioned could not be
implemented as per schedule. It was doubtful whether a proper implementation of
the rehabilitation scheme would have improved the operating performance of the
company.
In order to make the operations of ESL viable the rehabilitation scheme
projected a sales target of Rs.31 I lakhs in 1997-98 and to increase it gradually to
Rs.667 lakhs in 2000-01 and thereafter to remain at the same level till 2004-05.
15
Operating Cost Ratio = Cost of Goods Sold + Operating Expenses / Net Sales'' 100
16
Debt Equity Ratio = Long Term Debt I Shareholders Funds.
Chapter 6 20 1
The rehabilitation scheme failed to ascertain the viability in increasing the sales of
the company in the changed economic scenario aRer the liberalisation of the
economy in the 90s. The reduction in import duty from I45 percent in 1990-91 to
40 percent in 1994-95 and the facilities made available to the importers to restrict
duty to 15 percent by classifying ceramic cores as ceramic baseifomers made
imported cores cheaper for domestic goods.17 Many Taiwan companies took this
privilege to dump goods to the Indian market which took away a sizable segment
of the market share of ESL. The rehabilitation scheme failed to ascertain the
marketing chances of 'bio-egg kits' in the Indian market and to provide adequate
sales promotion measures.
The rehabilitation scheme also failed to consider the impact of
fluctuations in the value of Yen. The appreciation in the value of Yen increased
the import cost of raw materials. It also increased the amount of foreign currency
lorn and interest charges thereon.
The failure of the rehabilitation scheme in ascertaining the economic
viability of the company resulted in its failure. The availability of imported
ceramic cores at a price lower than the domestic price affected the economic
viability of ESL. As long as this situation continues, the revival of ESL is not
possible.
-
17
Operating Agency Report 2000, P 12.
Chapter 6
6.6 The Pigments India Limited
The Pigments India Ltd (PE) was incorporated on 23 December 1982.
The Registered Office of the Company and the Pigments Division are situated at
Thazhekkad, in Thrissur District and the Chemical Division, at Edayar in
Ernakulam District, Kerala State. The company was promoted in the joint sector
by Shri. G.R.Warrier and others in participation with the Kerala State industrial
Development Corporation (KSIDC). The company's product line includes iron
oxide, different types of chromes, Pmssian blue and sodium bi-chromate.
The company started commercial production in January 1986. The
performance of the company was not encouraging in the initial years due to low
capacity utilisation and poor sales. The total amount of sales made by the
company during the first four years remained as low as Rs.202.59 lakhs. The poor
sales resulted in repetitive losses and the networth of the company was totally
eroded within the first 15 months of its operations. The continuous losses incurred
put the company in deep fmancial constraints and the inability of the management
to bring in the required finance to recoup the cash toss incurred resulted in
excessive dependence on borrowed hnds. This increased the interest charges,
which affected the profitability of the company adversely. As on 3 1 March 1990
the amount of loss accumulated stood at Rs.177.12 Iakhs as against the share
capital and free reserves of Rs.61.79 IaWls indicating a negative networth of
Rs. 1 1 5.33 lakhs. The company was reported to BIFR in August 1990.
The BlFR declared the PIL as a 'Sick Industrial Company' within the
meaning of Section 3(I)(o) of SICA, 1985 in November 1990 and the Industrial
Reconstruction Bank of India ( M I ) was appointed as the Operating Agency to
formulate a rehabilitation scheme for the company.
The Operating Agency prepared a rehabilitation scheme with 31
December 1991 as the cut off date. The cost of the scheme was worked out at
Chapter 6
Rs.44 lakhs. The BIFR approved the scheme on 26 March 1992 after arriving at a
consensus among all Participating Agencies. However, due to certain
modifications carried out in the sanctioned scheme as regards shifting the
Chemical Division from Edathala to a more convenient location at Edayar, the
implementation of the scheme could not be implemented as per schedule. The cost
of the modified scheme was estimated at Rs.52 lakhs and it was financed by the
promoters (Rs.14.50 lakhs) and with term loans from the IRBI (Rs.33.50 lakhs)
and the KSIDC (Rs.4 lakhs). The modified scheme was implemented w.e.f., 1
April 1995.
Due to the delay in implementing the rehabilitation scheme the
performance of the company continued to languish worsening its financial position
substantially. The financial position and operating results of the PIL from its
inception up to the implementation of the rehabilitation scheme are given in Table
6.17.
Table 6.17:- Financial Position and Operating Results of PIL
Year
1985-86,
1986-87
1987-88
1988-89
1989-90
1 990-9 1
1991-92
1992-93
1993-94
1994-95
Source: Annual Reports. *During f 985-86 only for 3 months.
S.V.P
.20
30.00
57.12
45.4 1
70.06
141.63
153.15
20 1.54
237.05
332.05
Net Profit/
(Loss)
(2 1 .79)
(30.09)
(35.68)
(48.99)
(40.57)
(24.1 8)
(49.29)
(52.27)
(43.37)
(4 1.72)
(Rs. in labs)
Accumulated
Loss
21.79
5 1.88
87.56
136.55
177.12
Networth
21.24
-2.92
-34.60
-75.59
- 1 15.33
201.30 1 -141.20
250.39
302.86
346.23
387.95
-184.15
-229.42
-272.44
-3 12.82
Chapter 6 204
Table 6.17 shows that in spite of the increase in sales from Rs. 30 lakhs in
1986-87 to 332.05 lakhs in 1994-95, the company could not make profit in any
financial year. The amount of loss accumulated stood at Rs.387.95 lakhs as on 31
March 1995 indicating a negative networth of Rs.3 12.82 lakhs. The amount of
loan fiinds increased more than four times fiom Rs. 1 10.37 lakhs to Rs.488.42
lakhs between March 1986 and 1995. This increased the amount of finance
charges from Rs. 19.92 lakhs to Rs.59.17 lakhs between 1986-87 and 1994-95.
6.6.1 Causes of Sickness
The Operating Agency identified the following as the causes of sickness in
Pigments India Ltd.
i . Erratic supply of power due to power cut.
ii. Inadequate supply of fresh water for operation.
iii. Disadvantages of location as the Pigment Division and the Chemical Division
are located 35 KMs apart.
iv. Inadequacy of open space for eMuent disposal and the cost involved in its
transportation.
v. High interest charges due to uneconomic scale of operation.
vi. Lack of concerted efforts in strengthening the marketing/sales network.
In the case of Pigments India Ltd., the rehabilitation scheme proposed to
tackle the problem of sickness by increasing the scale of operation and
profitability. To enhance profitability the scheme proposed to reduce the amaunt
of interest charges with necessary financial restructuring enjoying relief and
concessions fiom financial institutions and banks. The scheme further envisaged
modification of existing leaching system by installing agitators, insulation of
existing machines and installation of one tube well in the Chemical Plant,
purchase of a piece of land 3 KMs away from the plant for installation of one
Chapter 6 205
pump set of TO HP to get sufficient water during summer and to construct an
Effluent Treatment Plant (ETP) at Edayar. The total cost of the scheme and the
means of finance are given in Table 6.18.
The modified rehabilitation scheme estimated a total cost of Rs.52 lakhs
(Rs. in lakhs)
and it was financed by the promoters (Rs.14.50 lakhs) and with term loans from
Requirement of Funds
Capital Expenditure
Contingenc ies
Total
the IRBI (Rs.33.50 lakhs) and the KSIDC (Rs.4 lakhs).
6.6.3 Remedial Measures
Amount
46.00
6.00
52.00
i. To buy and install a DG set of 160 KVA in the Pigments Division, 1 10 KVA
DG set at the Chemical Division and a transformer of 250 KVA to enable the
company to draw power from the grid to tackle the problem of power cut.
i i . To activate the production of sodium dichromate, the main raw material used
in the Chemical Division both for captive consumption and for sales to
customers.
Means of Finance
Promoter's Contribution
Term Loans from
IRBI
KSIDC
Total
iii. To take care of future water requirements to buy a land 3 KMs away from the
company's premises and to construct bore well and transport water from there
during summer in tankers.
Amount
14.50
33.50
4.00
52.00
-
iv. To strengthen the commercial wing of the company.
Chapter 6 206
v. Regarding emuent disposal it will be first neutralised at the plant and then
transported to ETP at Edayar 35 KMs away the from the Pigment Plant.
Company's own tankers should be used for transportation.
vi. Shifting the Chemical Division from Edathala to a convenient location at
Edayar and to sell the surplus land at Edathafa at a price of Rs. 15 lakhs.
6.6.4.1 KSIDC
i. To waive penal interest charged in the various accounts up to 30-9-1991.
ii. Convert the entire interest outstanding into Funded Interest Term Loans (FITL)
carrying interest @ 10 percent to repay Rs.84.7 1 lakhs over a period of five
years commencing from 0 1-07- 1995, the existing term loans aggregating
Rs.76.10 lakhs to be repaid over a period of six years commencing from 0 1-0 1 -
1996 at the documented rate of interest and the unpaid interest up to 02-03-
1995 on term loans and FITL amounting to Rs.40.79 lakhs will be repaid in 24
instalments commencing i?om 0 1-07- 1995 @ 12.50 percent per annum.
6.6.4.2 KFC
i . Old FlTL (Rs.12.50 lakhs) will be repaid over a period of five years
commencing from 0 1 - 10- 1995 @ 10 percent per mu m.
ii. Existing term loan of Rs.22.46 lakhs to be repaid over a period of six years
commencing from 0 1-0 1 - 1996 @ 12.5 percent per annum.
iii. Unpaid interest on loans ( 1) and (2) above up to 3 1-03- 1995 (Rs.8.84 lakhs) to
be funded as FITL and will be repaid in 24 monthly instalments commencing
from 01-07-1995 @ 12.5 percent per annum.
i . To convert the entire interest outstanding Rs.37 lakhs in to FITL repayable
over a period of five years commencing from 01 -10- 1995 @ 10 percent per
annum.
ii. The existing term loan of Rs.35 lakhs to be repaid over a period of six years
commencing from 01 -0 1 - 1 996 @ 1 2.50 percent per annum.
Chapter 6 207
iii. Unpaid interest on loans ( 1 ) and (2) above up to 31-03-1995 (Rs.20.27 lakhs)
to be funded as FITL which will be repaid in 24 monthly instalments
commencing from 0 1-07-1 995 @ 125 percent per mu m.
6.6.4.4 SBT
i. The outstanding Working Capital Term Loan (WCTL) of Rs.3.70 lakhs will be
repaid in seven quarterly instalments commencing form 0 1-07- 1995 @ 13.5
percent per annum.
ii. To provide need based working capital facilities at interest rate of 15.5 percent
per m u m
i . Term loan of Rs.34 lakhs shall be repaid over a period of seven years
commencing 6om 0 1-0 1 - 1 996 at the documented interest rate of 14 percent
per annum.
ii. Unpaid interest of Rs.6.7 lakhs from 01-01-1994 to 31-03-1995 to be funded as
FITL at the rate of interest of 12.5 percent and to be repaid in 24 instalments
commencing from 01 -07- 1 995.
i. To sell the idle assets at Edathala and appropriate the proceeds of the sale
against the arrear dues to Institutions and KSCB on a pro- rata basis.
ii. To bring in unsecured interest free funds to meet any contingent liability at the
time of framing and sanctioning this package.
6.6.4.7 State Government
i. The unpaid sales tax for the period 01-01- 1992 to 3 1-03-1 994 to be considered
as deferred sales tax loan carrying interest rate of 12 percent per annum and to
be repaid in 24 monthly instalments commencing from 0 1-04-1 997.
ii. To allow sales tax exemption for the Chemical Division at Edayar.
iii. To grant investment subsidy and power subsidy for Chemical Division as
applicable to new units.
Chapter 6
6.6.5 Projected Financial Position and Operating Results of PIL
The rehabilitation scheme implemented in PIL aimed at making the
operations of the company profitable by increasing sales and reducing the interest
charges. To ensure viability in operations the scheme projected a sales target of
Rs.644.16 lakhs during 1995-96 and to remain at the same level up to 2001-02. It
envisaged making the operations of the company profitable in 1995-96, the
networth to become positive in 1997-98 and to wipe off the entire amount of
accumulated losses by 1998-99. The rehabilitation scheme was implemented for a
period of eight years and it projected the operating results and financial position of
the company from 1994-95 to 200 1-02, which are given in Table 6.19.
Table 6.19:- Projected Financial Position and Operating Results of PIL
Particulars
Financial Position:
(as on 31 March)
Fixed Assets (net)
Current Assets
Current Liabilities
Current Ratio
Shareholders' Funds:
Share Capital
Reserves & Surplus
Term Liabilities
Debt-Equity Ratio
Accumulated Loss
Networth
Operating Results:
S.V.P
Operating Expenses
Operating Cost Ratio
Operating Profit
Finance Charges
Net Profit (Loss) clf
Source: Rehabilitation
1995
148
128
7 1
1.80
5 1
25
51 1
6.72
388
-312
scheme.
1998
113
282
37
7.62
5 1
3 1
320
3.90
54
27
644
473
73.45
171
55
116
117
1W6
131
234
43
5.44
5 1
3 1
507
6.18
277
-196
644
470
72.98
174
74
100
110
1999
106
314
37
8.49
5 1
73
249
2.01
0
123
644
476
73.91
168
45
123
97
1997
121
244
37
6.59
5 1
3 1
407
4.96
171
-90
644
471
73.14
173
67
106
106
(Rs,
2000
I01
328
37
8.86
5 1
142
189
0.97
0
193
644
479
74.38
165
37
128
69
in lakhs)
2001
97
357
37
9.65
5 1
211
145
0.55
0
262
644
483
75.0
161
33
128
69
2002
94
424
37
11.46
5 1
280
138
0.42
0
332
644
487
75.62
157
28
129
69
Chapter 6 209
Table 6.19 exhibits that to enhance the profitability of the company the
schemes proposed a gradual reduction in term loans from Rs.511 lakhs to Rs.138
lakhs between March 1995 and 2002 and thereby reduce the amount of annual
interest charges from Rs.74 lakhs to Rs.28 Iakhs between 1995-96 and 2001-02.
6,6,6 Level of Implementation of the Rehabilitation Scheme
All major proposals in the modified rehabilitation scheme sanctioned by
the BIFR were implemented except the sale of surplus land and building at
Edathala.
6,6,7 Financial Position and Operating Results of PIL
The rehabilitation scheme implemented in PIL w.e. f., 1 St April 1 995 did
not improve its operating results and financial position. The actual sales remained
less than 50 percent of the projected targets on an average and the company could
not earn profit in any financial year after implementing the rehabilitation scheme.
The average annual sales earned by the company after implementing the
rehabilitation scheme were only Rs.279.20 lakhs as against the projected sales
target of Rs.644.16 lakhs. Poor sales resulted in repetitive losses and the company
incurred a total loss of b . 3 13 lakhs a between I 995-96 and 1999-00.
The operating results and financial position of the PIL after implementing
the rehabilitation scheme are given in Table 6.20 and Figure 6.5 shows the
projected and actual sales and profiVloss of PIL.
Chapter 6
Table 6.20:- Financial Position and Ol~eratin
-100 -
Particulars
Financial Position:
(us on 31 March)
Fixed Assets (net)
Current Assets
Current Liabilities
Cment Ratio
Share Capital
Resaves & Surplus
Term Liabilities
Debt-Equity Ratio
Accumulated Loss
Networth
Opemtiag Results:
S.V.P
Other Income
Aggregate Income
Operating Expenses
Operating Profit/Loss
Finance Charges
-
w Ic. - W B 3 r
&
m a Q, b, 0
r
m
F
m Q)
7 ry
0
CV
8
CV
3
CI(
-200
Year
I - Projected Sales - Pmjeded Profit - Actual Sales -Actual profit 1
Note: Sales and ProfitrLoss are shown in Rs. in lakhs
Results of PIL (RS. in lakhs)
Chapter 6 21 1
Poor sales and huge losses incurred put the company in deep financial
crisis and all repayment obligations to Banks and Financial Institutions including
interest remained pending. As s result the loan funds increased more than 50
percent from Rs.488.42 la& to Rs.734 lakhs between 31 March 1995 and 2000.
Consequently annual finance charges remained as high as Rs.69.80 lakhs on an
average in spite of the drastic reduction in lending rates by banks.
The heavy losses incurred and the inability of the management to mobilise
the required finance to recoup the cash losses incurred put the company in severe
financial crisis, which resulted in laying off the Chemical Division at Edayar since
1996 and reduction in capacity utilisation in the Pigments Division.
The BIFR in its hearing held in May 2000 directed the Operating Agency
to chalk out a fresh revival package on certain OTS formula of dues to Banks and
Financial Institutions and to fmd out a new promoter who can invest adequate
funds to revive and streamline the operations of the company.
The rehabilitation scheme implemented in PIL failed mainly due to the
inherent weaknesses of the scheme. The scheme envisaged making the operations
of the company viable by increasing sales. But it failed to adopt measures to
increase sales so as to achieve the projected sales targets.
The rehabilitation scheme correctly identified the marketing network in
PIL as weak. There was no separate marketing department in the company. The
Finance Manager looked after the marketing function also. The company had no
retail marketing division though the flooring materials (iron oxides) were
demanded in small lots by customers. The company engaged in bulk sales and the
benefit of retail marketing was enjoyed by the 'repackers' by marketing them in
small quantities in their own names. The rehabilitation scheme failed to include
measures to strengthen the marketing network and to start retail marketing. What
Chapter 6 2 12
the company required was a separate marketing department under a professionally
qualified marketing manager for shaping good marketing strategies in a
competitive market.
The heavy burden of interest on borrowed funds affected the profitability
of the company adversely. The rehabilitation scheme adopted measures for
rescheduling term loans after funding of interest to make their repayment easy.
But this would have been successful only if the company had operated
successfully and was in a position to repay the loan promptly. Reduction in loan
funds was the only remedy available to reduce the burden of interest and to save
the company, especially when the company was facing a dificult situation. One
time settlement (OTS) of dues with own fund availing maximum possible
concessions was the best available alternative to eliminate interest charges.
The rehabilitation scheme implemented in PIL failed even after correctly
identifying the reasons for the sickness of the company. This was mainly due to
the failure of the rehabilitation scheme in providing suitable remedial measures.
If the scheme had included measures to strengthen the marketing network and to
reduce the interest cost by manging OTS of dues to Financial Institutions, the
rehabilitation scheme would have become a success. The BIFR acknowledged this
fact and directed the Operating Agency in May 2000 to submit a fresh revival
package in line with some OTS formula of dues to Financial Institutions and
Banks with own fund.
Chapter 6
6.7 The Aluminium Industries Limited
The Aluminium Industries Limited (ALIM)) was promoted in 1946 by
the Sheshayee group. The Registered Office of the Company is situated at
Kundara in Kollarn District, Kerala State. ALIND is a multi product company
engaged in the manufacture of plain steel covered aluminium conductors for
electrical overhead transmission purposes, conductor accessories and fittings,
insulated aluminium cables, solidal underground cables, general utility aluminium
ware and aluminium alloy castings.
ALIND started commercial production in 1950 with bare conductors.
The manufacture of high tensile galvanised steel wire was started in 1961 and
solidal under ground cables in 1964. The company established a consultancy and
engineering division in 1970-71 and vacuum circuit breaker was introduced in
1984-85, With more than 1100 employees under its fold ALND emerged as one
of the large industrial units in the state.
The performance of the company was satisfactorily during the first 25
years. The entire production was absorbed by the State Electricity Boards. But
the emergence of other units in the field during the late 70s with diversified
product range and better technology eroded the profit margin enjoyed by the
company. The increase in the price of aluminium, the basic raw material and other
incidental expenses affected the profitability of the company. The inability of the
company to transfer the increase in cost of production to its customers due to the
stiff competition in the market resulted in continuous losses to the company since
1982-83. The Board of Directors made a report to the BIFR in August 1987. The
operating results of the ALIND between 1982-83 and 1986-87 are given in Table
6.2 1.
Chapter 6
Table 6.21:- Operating Results of ALIND
The table shows that the accumulated losses of the company as on 31
March 1987 stood at Rs.2565 lakhs as against the share capital and free reserves of
Rs.373 lakhs indicating a negative networth of Rs.22 15 lakhs.
-
(Rs. in lakhs)
The BlFR in its first hearing held in January 1988 declared ALIND as a
'Sick Industrial Company' within the meaning of Section 3(1)(o) of SICA, 1985
and appointed the Industrial Reconstruction Bank of India (IRBI) as the Operating
Agency. The IRBI formulated a rehabilitation scheme fixing 1'' April 1989 as the
cut off date for the implementation of the scheme. On 5' October 1989 the BXFR
sanctioned the scheme after arriving at a consensus among all participating
agencies.
Year
1982-83
1983-84
1984-85
1985-86
1986-87
The rehabilitation scheme envisaged -
i. change in management and
. .
11. modernisationlexpmsion of plant.
The Somani Group, Bombay agreed to takeover the management of the
company and agreed to invest Rs.300 lakhs immediately and Rs. 100 lakhs after
Net Profit /
(Loss)
(236)
(616)
(733)
(229)
(867)
Sales
-
2340
4235
5537
5 129
Accumulated
Loss
500
736
1469
1698
Networth
320
-32 1
-1096
-1325
2565 1 -221 5 1
Chapter 6 215
one year in the form of equity andor unsecured loans. The scheme also
proposed a team of professional managers who would be able to utilise the
existing facilities so as to diversify the product range to improve the profitability
of the organisation. The total cost of the scheme was worked out at Rs.949
lakhs. The total cost of the scheme and the means of finance are given in Table
6.22.
Cost of the Scheme
Capital Expenditure
Margin Money
Pressing Creditors:
Fixed Deposits 72
Interest on FD 24
PF dues 60
Gratuity Premium 60
Superannuation 10
Bonus for1987-88 32
(Rs. in lakhs)
I I 1
Promoters
Banks
Amount
7rl
The rehabilitation scheme proposed a capital expenditure of Rs. 126
lakhs. It allocated Rs. 258 lakhs to meet pressing creditors and Rs. 565 lakhs as
margin money. The cost of the scheme was met with promoters' contribution of
Rs. 300 Iakhs and loans from financial institutions and banks, Rs.649 iakhs.
Total
949
Total
949
Chapter 6
The rehabilitation scheme envisaged relief and concessions amounting to
Rs.2002 lakhs from various participating agencies. The relief and concessions
agreed by the individual participating agencies are given as follows:
6.7.2.1 Financial Institutions
i. To reduce the interest on existing debentures to 8.5 percent per m u m w.e. f., I
April 1982 and to write off the excess amount thus worked out.
ii. To reduce the interest on term loans to 6.5 percent per annum from 01-04-1 982
and to write off the excess interest charged.
iii. To provide a new rehabilitation loan amounting to Rs.576 lakhs at an interest
rate of 12.5 percent per annum.
iv. To waive all penal charges, penal interest and liquidated damages up to 3 1-10-
1989.
v. To revise the existing repayment schedule of term Ioans so as to make them
repayable in instalments between 1 990-9 1 and 1999-00, along with new term
Ioans.
6.7.2.2 Banks
i. To reduce the interest on existing debentures to 8.5 percent per annum w.e.f.,
0 1-04- 1982 and to write off the excess amount thus worked out.
ii. To reduce the rate of interest on working capital borrowings, funded loans and
demand loans to 8.5 percent per annum from 01-04-1982 and to transfer the
interest thus worked out into a separate interest fiee term loan.
iii. To revise the existing repayment schedule of term loans so as to make them
payable between 1990-91 and 1999-00 along with new term loans.
iv. To provide a new rehabilitation loan of Rs.73 lakhs carrying interest @ 12.5
percent per annum.
Chapter 6
v. To waive all penal interest and penal charges up to 30-10-1989.
6.7.2.3 State Government
The Governments of Kerala, Andhra Pradesh and Orissa agreed to
provide interest free sales tax loans to the company for its present scheme for the
first three years of rehabilitation. This shall be repaid Born the 4' to the @year.
6.7.2.4 Promoters
i. The new promoters shall induct a sum of Rs.300 lakhs as soon as the draft
scheme is approved by the BFR and another Rs.lcrore during the year 1990-
9 1 by way of equitylinterest fiee unsecured loans.
ii. The new promoters shall undertake to meet all future cash losses of the
company without recourse to banks/financial institutions.
6.7.3 Viability of the Company
viable by increasing sales and reducing interest charges. To make the operations
of the company profitable the rehabilitation scheme proposed a gradual increase in
its sales from Rs.9120 lakhs in 1990-91 to Rs.12136 lakhs by 1993-94 and to
remain at the same level till 1999-00. The scheme also aimed at gradually
reducing the annual interest charges from Rs.602 lakhs in 1990-91 to Rs. 405
lakhs by 1998-99. To attain this the scheme proposed a reduction in term liabilities
from Rs. 4996 lakhs to Rs. 1057 lakhs during the same period, The scheme
projected the operating results and financial position of the company for a period
of 1 0 years from 1990-9 1 to 1 999-00, which are given in Table 6.23,
Table 6.23:- Projected Financial Position and Operating Results of ALIND
Particulars
Financial Position:
(mon 331 M&
Fixed Assets (net)
Current Assets
Current Liabilities
Cment Ratio
Term Liabilities
Share Capital
Reserves
SU~~I US
Networth
Debt-Equity Ratio
Operating Results:
&em ended 31 March)
S V P
Operating Expenses
EBIT
Interest
Profitl(Loss) after tax
1991
382
4388
4056
1.08
4996
270
20
-4551
-4261
17.22
9120
8592
528
602
(74)
1992
288
5440
4761
1.14
4866
270
20
-4168
-3878
16.77
11448
10416
1032
649
383
1993
244
5755
4900
1.17
4510
270
20
-3680
-3390
15.55
11448
10345
1103
615
488
1994
200
5959
4915
1.21
3983
270
20
-3008
-2718
13.73
12136
10973
1163
49 1
672
1995
156
6052
4815
1.26
3417
270
20
-2293
-2003
11.78
12136
10973
1163
448
71 5
-
I996
112
6148
4715
1.30
2839
270
20
-1563
-1273
9.79
12136
10973
1163
433
730
-
1997
68
6272
4640
1.35
2253
270
20
-822
-532
7.77
12136
10973
1163
422
74 1
--
1998
24
6471
4640
1.39
1660
270
20
-74
216
5.72
12136
10973
1163
4 15
740
(Rs. in
1999
24
6670
4640
1.44
1057
270
20
728
1018
3.64
12136
10929
1207
405
802
lakhs)
2000
24
6899
4640
1.49
484
270
20
1530
1820
1.67
12136
10929
1207
405
802
Chapter 6 21 9
The successful implementation of the rehabilitation scheme aimed at
making the operations of the company profitable in 199 1-92, the networth positive
in 1997-98 and to wipe off all carried forward losses by 1998-99.
In ALIND the rehabilitation scheme was properly implemented with the
support of the Participating Agencies. The new promoter MIS Somani Group had
inducted Rs.400 lakhs as agreed; Rs.300 lakhs in November 1989 and Rs.100
I&s in 1 990-9 1. The financial institutions sanctioned loans amounting to Rs.576
lakhs and the bankers made available Rs.73 lakhs in addition to need based
working capital provided. Various participating agencies provided relief and
concessions amounting to Rs. 1953 lakhs, which were incorporated in the accounts
in 1989-90 and 1990-91. But the company could not carry out the repairs and
replacement of plant and machinery as envisaged in the rehabilitation scheme.
Only Rs.78 lakhs were spent for the purpose as against the projected figure of
Rs. 1 26 lakhs.
6.7.5 Operating Results of ALIND
The implementation of the rehabilitation scheme helped ALIND to
increase its sales revenue from Rs.4086 lakhs in 1989-90 to Rs.11876 lakhs in
1993-94. But the company could not earn profit in any financial year mainly due
to the increase in operating expenses. The rise in the prices and the impact
devaluation of rupee in 1991 resulted in escalation in the imported cost of
aluminium, the basic raw material used by the company. The company could not
transfer the increase in cost of production to customers since materials were
procured under special imprest licences against deemed export orders. The
increase in power tariff, wage rates and the huge burden of interest also affected
adversely the profitability of the company. The operating results and financial
Chapter 6 220
position of A L W after implementing the rehabilitation scheme are given in
Table 6.24.
Table 6.24:- Financial Position and Operating Results of ALIND
Financial Position:
(as on 31 March)
Fixed Assets (net)
Particulars
Investments
19901
Current Assets
Current Liabilities
Current Ratio
Term Liabilities
Share Capital
Reserves & Surplus
Debit-Equity Ratio
Accumulated Loss
Networth
Operating Results:
bear ended 31 March)
S.V.P
Operating Expenses
Other Income
Interest
Net Profit (Loss)
Interest Re1 ief
Profit (toss) clf
Rs. in lakhs)
*
Table 6.24 shows that ALIND incurred a huge loss of Rs.3887 lakhs"
between 1990-91 and 1993-94. This made the BIFR to come to the conclusion
l 8 The loss is calculated after adjusting the interest relief.
Chapter 6
that the rehabilitation scheme implemented as such could not save the company.
Hence the BIFR in August 1994 directed the Operating Agency to submit new
comprehensive proposals for the rehabilitation of the company with a new
promoter who can takeover the company.
The performance of the ALIND deteriorated further in 1994-95 and 1995-
96. Sales declined to Rs.6446 lakhs and Rs.3299 lakhs and the company incurred
huge losses of Rs.2009 lakhs and Rs.2841 lakhs respectively during the same
period. This resulted in severe working. capital constraints to the company
resulting in suspension of its operations since November 1998. Figure 6.6 is the
graphic representation of the projected and actual sales and profit/loss of ALIND.
I 6O0O 1
Fig: 6.6:- Projected and Actual Sales and ProfiULom of ALlND
Year
- Projected Sales - Projected Profit - Actual Sales -Actual Profit
Chapter 6 222
The Operating Agency could not find a new promoter who can takeover
the ALIND even after repeated advertisements in newspapers and the BIFR
decided to issue show cause notice for the winding up of the company.
Meanwhile the Government of Kerala, considering the large employment potential
of the ALIND assured the BIFR that it would find a new promoter who can take
over the company and the BIFR granted time accordingly.
6.7.6 Reasons for the failure of the rehabilitation scheme
In the case of ALIND poor sales, high operating expenses and heavy
burden of interest were the main reasons for the failure of the rehabilitation
scheme. The company could not transfer the increased cost of production to the
customers since materials were procured under special imprest licence against
deemed export orders. The increase in power tariff, wages and other expenses and
the heavy burden of interest affected the performance of ALMD adversely. The
entry of multi national companies in the market with improved technology,
products and service also affected the performance of ALIND.
Chapter 6
6.8 The Travancore Rayons Limited
The Travancore Royons Ltd (TRL) was promoted in 1945 jointly by
Mr.M.Ct.M Chidambaram Chettiar and the then Government of Travancore. The
Government participated in the capital structure to the extent of 20 percent of the
stocks and provided liberal grants by way of lease of land, supply of electrical
energy at concessional tariffs and permitted full and free use of water from the
river Periyar.
The Registered Office and the Factory of the company are situated at
Rayonpuram in Ernakulam District, Kerala State. The main objects and activities
of the company were to manufacture Rayon Yarn, Cellulose Film, Cotton Linter
Pulp, Sulphuric Acid and Cotton di-suiphide. WS Ing.a.Maurer, Berne was the
technical consultants of the company.
TRL started commercial production in 1947 and the performance of the
company was encouraging during the first 25 years. The then policy of the
government to encourage units producing import substitutes helped the company
to make an edge in the market. But the liberalised import of Rayon Yam during
1970s made the indigenous production of Yarn uneconomic, which took the
industry to a crisis and the company, incurred losses continuously since 1979. The
Board of Directors made a report to the BIFR in July 1987 under section 15(1) of
SICA 1985. In September 1988 the BIFR declared TRL as a 'Sick Industrial
Company' under Section 3(1)(o) of SICA, 1985 and the Industrial Development
Bank of India (LDBI) was appointed as the Operating Agency. The IDBI
formulated a rehabilitation scheme for the company and it was finally approved by
the BlFR on 4 September 1989 after arriving at a consensus among the
Participating Agencies. The operating result of the TRL from 1979 to 1986 is
given Table 6.25.
Chapter 6
Table 6.25:- Operating Results of TRL
As on 3 1 December 1986 the accumulated losses of the company stood at
Rs.2451.9 lakhs as against the share capital, Rs.252.5 lakhs and reserves and
surplus, Rs.66.3 lakhs indicating a negative networth of Rs.2 1 33.1 lakhs.
(Rs. in Iakhs)
Year
1979
1980
198 1
1982
1983
1984
1985
1986
The rehabilitation scheme envisaged maximum utilisation of company's
Rayon Yarn manufacturing facilities by renovation of 17 spinning machines fixing
the product mix of rayon yarn/cellulose film at 5540 tpa; working the cotton linter
pulp division and carbon di-sulphide plant mainly for captive consumption;
recommissioning the sulphuric acid plant to undertake job work and modernisation
of material handling equipment or coai fired boilers.
The cost of the rehabilitation scheme had been worked out at Rs.2238
lakhs; of which Rs. 1640 lakhs had already been incurred up to 3 1-03- 1989 leaving
the balance at Rs.598 lakhs. Cost of the Scheme and means of finance envisaged
Net Profit (Loss)
(2 5 -70)
(59.75)
(153.37)
(352.1 8)
(45 1.40)
(680.93)
(473.47)
(407.76)
in the rehabilitation scheme are given in Table 6.26.
Networth
345.81
286.07
132.69
-2 19.49
-670.91
-1351.84
- 1725.33
-2133.09
Chapter 6
(Rs. in lakhs)
I
Requirement of Funds I Amount
Capital Expenditure
StatutorylPressing Creditors
Margin Money
Total 1
Kerala Government
Term Loans:
Institutions
Banks
Disposal of Assets
Funding of Interest
Deferment of Sales Tax/
Electricity Duty
Means of Finance
Total 1- 598
Amount
The rehabilitation scheme proposed a capital expenditure of Rs. 319
lakhs. It also allocated Rs. 2 16 lakhs for meeting statutorylpressing creditors and
Rs. 63 lakhs as margin money. To meet the cost of the scheme the Government of
Kerala agreed to provide an interest free loan amounting to Rs.155 lakhs.
Financial Institutions and Banks agreed to provide loan amounting to Rs. 197
lakhs.
The scheme envisaged the following relief and concessions from various
participating agencies.
6.8.2.1 Institutions: (IDBI, ICICI, IFCI, LIC and IRBI)
i . To provide fresh term loans of h. 8 9 lakhs carrying interest @ 1 1.5 percent per
annum.
ii. To fund interest amounting to Rs. 159 lakhs for the period from October 1987
to March 1989 and charge interest thereon @ 6 percent per annum form April
1989.
Chapter 6 226
iii. To charge interest @ 6 percent per annurn from October 1987 on interest
fhded up to 30 September 1987 amounting to Rs.325 Iakhs on interest free
basis.
iv. To receive interest amounting to Rs.107 lakhs for the year 1988-89 (April-
March) in 24 equal monthly instalments from July 1989.
v. To revise repayment schedule so that the funded interest would be repaid in 28
quarterly instalments commencing fiom 15 June 1989 and ending on 15 March
1996. Overdue in respect of this and (iv) above to be paid along with
instalments for September 1989.
vi. To revise repayment schedule for the term loans existing and additional so as
to be repaid in 36 quarterly instalments commencing from 15 June 1990 and
ending on 1 5 March 1999.
vii. To waive penal interest, commitment charges etc, if any charged up to 31
March 1989.
6.8.2.2 Banks (IB, BOI, SBT and CB)
i. 'To provide fresh term loans of Rs.89 lakhs canying interest @ 1 1.5 percent per
annum.
ii. To fund interest amounting to Rs.159 lakhs for the period from October 1987
to March 1989 and charge interest thereon @ 6 percent per annum form April
1989.
iii. To convert Rs.10 lakhs being the principal portion of the irregularity in the
bank borrowings as on 31 March 1989 into Working Capital Term Loan
(WCTL) carrying interest @ 13.5 percent per annum and fund interest position
carrying interest @ 6 percent per annurn.
iv. To charge interest @ 6 percent per annum from October 1987 on interest
funded up to 30 September 1987 amounting to Rs.427 lakhs on interest free
basis.
v. To fund interest for the period October 1987 to 31 March 1988 and for the
period 1988-89 (April - March) and charge interest thereon @ 6 percent per
annum from April 1 989.
vi. To receive interest for the year 1988-89 (April-March) in 24 equal monthly
instalments fiom 3 1 July 1989.
vii. To revise repayment schedule so that the funded interest would be paid in 28
quarterly instalments commencing from 30 June 1989 to 3 1 March 1996.
viii. To revise repayment schedule for the term loans and working capital term
loans-existing and additional so as to be repaid in 36 quarterly instalments
commencing fiom 30 June 1990 to 3 1 March 1999.
ix. To waive penal interest, commitment charges etc, if any charged up to 31
March 1989.
i. To provide Rs. 155 lakhs (interest free) in two instalrnents during 1989-90 and
1990-91. The instalment of Rs.59 lakhs for the year 1989-90 may be released
immediately so as to enable the company to adhere to the implementation
schedule envisaged in the scheme.
ii. To guarantee the additional InstitutionaVBank term loans and additional
working capital facilities.
iii. To provide additional funds on interest free basis to meet any short fall in the
cash generation projected for meeting the institutionalhank dues; the
Government is to consider it at the time of review of the scheme.
iv. Repayment of Rs.271 lakhs interest free (being deferment of sales tax/
electricity duty) to be accepted after InstitutionaVBank dues with an option to
convert the same or part there of into equity.
v. To continue supply of power at concessional rate of 29.3 paise per unit for ten
months in a year and @ 80 paise per unit for the remaining two months up to
1999.
vi. To extend validity of the status of relief undertaking expiring on 13 June 1989
fkom time to time as may be required by Institutions and Banks.
Chapter 6
6.8.2.4 Company
i. Shall secure interest free fund to the extent of Rs.155 lakhs from the
Government of Kerala Rs.59 lakhs irnrnediateIy and the balance Rs.96 lakhs in
1 990-9 1.
i i . Shall secure the Government of Kerala's guarantee for the additional term
loans and funded interest to be provided by Institutions and Banks.
In the case of TRL the rehabilitation scheme could not be implemented
as per schedule due to the failure of the Participating Agencies in providing timely
finance. The Financial Institutions had agreed to provide fresh term loans
amounting to Rs.89 lakhs of which only Rs.66 lakhs were made available. Even
the disbursed amounts were not made available in time. Similarly, the Government
of Kerala had agreed to provide interest free loan of Rs. 155 lakhs but only Rs. 129
lakhs were made available yet. The delay in providing the required finance
affected the timely implementation of the rehabilitation scheme and the
performance of the company continued to languish. The outbreak of gulf war1 in
1990-91 affected the export of Rayon Yarn and it caused demand recession in the
domestic market. As a result, TRL incurred a huge loss of Rs.570 lakhs in 1990-
91 and Rs.59 lakhs in 1991-92. Heavy losses incurred caused severe financial
constraints and the company could not make repayment of term loans and interest
charges thereon. The arrears of interest stood at Rs.838 lakhs as on 3 1 March
1993.
The poor operating results of the TRL and the huge accumulation of
interest bearing securities made the Operating Agency to make a report to the
BIFR that the TRL had lost its long-term viability. As a result the BIFR directed
'Iraq invaded Kuwait in August 1990 and the US led coalition defeated Iraq in February
1991.
the Operating Agency to revise the rehabilitation scheme keeping in view the
following guidelines.
i . The company to clear the backlog of interest dues to the extent of Rs.400 lakhs
by 3 1 March 1994 and the balance amount of Rs.438 lakhs in 1994-95.
ii. To keep the rate of interest on term loandfunded interest unchanged as
provided in the sanctioned scheme.
iii. To revise the requirement of working capital borrowing which ould be
adequate for achieving the envisaged level of turnover.
The BIFR approved the modified scheme in February 1994. The Modified
rehabilitation scheme envisaged to make the operations of TRL viable by
increasing sales and reducing the interest charges. In order to make the company
viable the scheme proposed a sales turnover of b. 6139 lakhs in 1993-94, Rs.6 198
lakhs in 1994-95 and to remain at the same level till 2001-02. To reduce interest
cost the scheme proposed to reduce the annual interest charges fiom Rs.567 Iakhs
in 1993-94 to Rs.208 lakhs by 2001-02 with the gradual repayment of term
liabilities. The rehabilitation scheme projected the operating results and financial
position of the company for a period of nine years from 1993-94 to 2001-02 as
given in Table 6.27.
Chapter 6 230
operations of the company profitable in 1993-94, the networth positive in 1998-99
Table 6.27:- Projected Financial Position and Operating Results of TRL
and to wipe off the entire amount of accumulated losses by 2000-01.
6.8.4 Operating Results of TRL afker Reporting to the BIFR
2002
486
4231
2117
382
518
35
900
6198
5599
599
35
2 1
187
426
196
230
The perfomance of the TRL was closely related to the swings in the
Rayon Industry. The out break of gulf war2 in 199laffeoted the export of rayon
yarn and the consequent demand recession in the domestic market made the
source: Rehabilitation scheme (Modified).
Table 6.27 shows that the rehabilitation scheme envisaged to make the
in lakhs)
2001
503
4263
2117
382
288
217
141
43
670
6198
5420
778
35
55
187
571
263
308
industry sluggish and the company incurred a huge loss of Rs.570 lakhs in 1990-
(Rs.
Z O O
520
4260
2149
382
91
447
288
51
111
362
6198
5390
808
35
93
187
563
259
304
9land Rs.59 iakhs in 1991-92. The general improvements in the industry helped
1999
557
4244
2184
382
91
677
419
59
415
58
6198
5350
848
35
131
187
565
260
305
the TRL increase the sales turnover during 1992-93 and 1993-94 and to earn net
Particulars
Financial Position:
(as on 31 March)
Fixed Assets (net)
Current Assets
Current Liabilities
Share Capital
Reserves & Surplus
Term Loans
Funded Interesl
Debentures
Accumulated Loss
Networth
Operating Rtrulta:
( year ended 31 Match)
S.V.P
Operating Ex p s w
Operating Profit
Non-Opemting Income
Interest:
Term bans
Working Capital Loans
Profit Beforc Tax
Income Tax
Net Profit After Tax
profits of Rs.218 lakhs and Rs.474 lakhs respectively during the same period. But
1994
691
3447
2631
382
91
1832
1114
99
3037
-2564
6139
5094
1045
35
380
187
513
513
2
Iraq invaded Kuwait in August 1990 and the U.S. led coalition defeated Iraq in
February 1990.
1995
802
3380
2319
382
91
1601
975
91
2361
-1888
6198
5067
1131
35
303
187
676
676
1997
5
4141
2254
382
91
1139
697
75
1082
-609
6198
5202
996
35
206
187
638
-
638
1996
726
3748
2289
382
91
1370
836
83
1720
-1247
6198
5160
1038
35
245
187
641
641
1998
601
4221
2219
382
91
908
558
67
720
-247
6198
5206
992
35
170
187
670
308
362
Chapter 6
the company could not repeat the same performance in the succeeding years. The
outbreak of plague in Surat and Maharashtra during 1994-95 affected the domestic
market for rayon yam. Similarly the shift fiom the specific rate to advalorem
system of levy of excise duty made in the union budget 1994-953 increased the
cost of production of rayon yarn. The recession in the textile industry and the shut
down of many textile inills in South India had an adverse impact on the
performance of TRL. The power cut imposed on EHT consumers in Kerala during
January 1996 also affected the performance.of the company. The company had to
reduce the capacity of operation nearly by 15 percent. A culmination of all those
adverse factors gradually reduced the sales turnover from Rs.6768 lakhs in 1993-
94 to Rs.4008 lakhs in 1999-00 and the company incurred a huge loss of Rs.4816
lakhs between 1994-95 and 1999-00, Figure 6.7 is the graphical representation of
the projected and actual sales and profitnoss of TRL and Table 6.28 exhibits the
operating results and financial position of TFU from 1992-93 to 1999-00.
8000 1
Fig: 6.7:- Projected and Actual Sales and ProfitlLass of TRL
7000 -
c 6000 -
.-
6 5000 -
U)
4000 -
S'G-
5 3000 -
e 2
= 2000 -
(11
g 1000-
-
23 0 \ I I
I I
-1000 - 1994 199f 19m t B Q L - 2000
Year
-2000
- Pmjected Sales - Projected Profit -Actual Sales -Actual Profit
3
Annual report: TRL 1994-95, P3.
Chapter 6
As on 31 March 2000 the accumulated losses of the company stood at
Table 6.28:- Operating Results and Financial Position of TRL
Rs.7754 lakhs and the networth, at the negative figure of Rs.7214. A Current Ratio
of .64 and a Debt- Equity Ratio of 12.74 on the same date reflect the poor financial
position of the company. At this juncture the BIFR in October 2000 decided to
Source: Annual reports.
19%
687
1903
1766
1.08
382
91
4816
10.18
4464
(3992)
5735
56
5953
(162)
103.8
588
(750)
Particulars
Financial Position:
(us on 3 1 March)
Fixed Assets(net)
Current Assets
Current Liabilities
Current Ratio
Share Capital
Reserves & Sutplus
Term Liabilities
Debt-Equity Ratio
~ccumulated Imses
Networth
Operating R~ul t j :
( year ended 31 March)
S. V. P
Other Income
Operating Expenses
Operating Prof t (loss)
Operating Cost Ratio (YO)
Finance Charges
Net Profit (Loss)
- - -. - - -
serve a formal notice for the winding up of the company admitting the view
1997
621
1599
1864
0.86
382
9 1
4966
10.5
5082
(4610)
4572
22
4636
(42)
101.4
575
(617)
expressed by the Operating Agency in March 1998 that the company couldn't be
in lakhs)
1999
459
1461
1737
0.84
449
9 I
6074
11.25
6430
(5890)
4502
40
4687
(145)
104.1
701
(846)
(Rs.
1998
554
1666
1842
0.90
382
91
5467
11.56
5555
(5082)
4171
53
4263
(39)
102.2
580
(619)
1993
662
2819
1376
2-05
3 82
91
5153
10.9
3520
(3048)
6353
43
5647
749
88.9
531
218
-
made viable on a long-term basis.
2000
404
1309
2046
0.64
449
9 1
6881
12.74
7754
(7214)
4008
27
4640
(605)
1 15.8
720
(1325)
1994
772
3394
1525
2.23
312
9 1
5215
11.03
3046
(2574)
6768
3 5
5770
1033
85.33
559
474
Poor sales due to the recession in the textile industry and heavy burden of
1995
754
2930
1722
1.70
382
91
5196
10.99
3705
(3232)
5774
32
5869
(63)
101.6
596
(654)
interest led to the failure of the rehabilitation scheme implemented in TRL. The
out break of the Gulf War in 1991 and the plague in Surat and many parts of
Maharashtra affected the export of rayon yarn and caused demand recession in the
Chapter 6 233
domestic market. The sustained demand recession ova the years resulted in the
closure of many textile mills in South India. It adversely affected the performance
of TRL. The heavy burden of interest on borrowed funds also affected the
performance of TRL. I f the company had been able to arrange OTS of dues with
own funds the position of the company would not have been worse as of now.
6.9 The South India Wire Ropes Limited
The South India Wire Ropes Limited (SIWR) was incorporated on 13
December 1961. The company was jointly promoted by MIS Seshasayee Bros
(Travancore) (P) Ltd and the KeraIa State Industrial Development Corporation
(KSIDC) in technical collaboration with MIS Kokoku Steel Wire Ltd., Japan. The
Registered Office of the Company and the Factory is situated at Edathala in
Ernakularn District, Kerala State. SIWR is the largest wire rope manufacturing
unit in South India and the second largest in the country. Ever since
commencement of production in 1964 the performance of the company has not
been encouraging. The poor operating results and the sustained losses incurred by
the company led to change in management in 1969, 1975 and finally in 1979,
when Shri. H.M Periwal and his associates took over the management of the
company. They took several steps to rationalise the company's operations and the
company did show signs of recovery during 1982-85. But it did not last long and
the company incurred losses continuously since 1985-86.
The company initiated a modernisation scheme in March 1985 at a project
cost of Rs.246 lakhs with the aim of producing higher diallonger length wire ropes
for coal, steel and exploration industries. Unfortunately the project could not be
implemented as per schedule due to the delay in supplying machinery by the
indigenous manufacturers MIS Aluminium Industries Ltd. It resulted in cost over
nm, increase in interest charges due to the accumulation of debt and consequential
operating losses continuously since 1 9 85-86.
Chapter 6 234
The Board of Directors made a report to the BIFR on 31 October 1987.
The operating results of SIWR from 1979-80 to 1986-87 is shown in Table 6.29.
Table 6.29:- Operating Results of SIWR
Net Profit,
(Loss)
1979-80
1980-81
198 1-82
1982-83
1983-84
1984-85
1985-86
1986-87
151
197
273
420
344
449
498
393
Table 6.29 shows that as on 3 1 March 1987 the amount of accumulated
losses stood at Rs.212.73 lakhs as against the share capital and free reserves of
Rs.70 laws making the networth negative at Rs.147.30 lakhs.
- (Rs. in lakhs)
The BIFR declared SIWR as a 'Sick Industrial Company' within the
meaning of section 3(1)(0) of SICA, 1985 on 27 September 1988. The Industrial
Reconstruction Bank India (IRBI) was appointed as the Operating Agency in
March 1989. The IRBI submitted a draft rehabilitation scheme to the BIFR in
June 1989 and the scheme was finally approved on 13 September 1989 fixing 30
September 1989 as the cut off date for funding of interest on tern loans.
Accumulated
Loss
102.88
6.9.1 Reasons for Sickness of SIWR
Networth
-
The rehabilitation scheme identified the following reasons for the
sickness of SIWR and its present state of affairs.
Chapter 6
i. Inordinate delay in implementing the modernisation scheme.
ii. Continued neglect of routine repairs and maintenance of plant and machinery.
iii. Lack of discipline in financial management
iv. Non co-operative work force.
v. Uncompetitive market conditions.
The rehabilitation scheme identified the causes of sickness in STWR and
suggested suitable revival measures for the company. The cut off date for the
scheme was as 1 October 1989 and it was approved by the BIFR on 4 December
1989. The cost of the scheme was estimated at Rs.115.50 lakhs. The cost of the
scheme and means of finance are given in Table 6. 30.
Table 6.30:- Cost of the Scbeme and Means of Finance
(Rs.in lakhs)
/ Repairs and renewals
Capital expenditure
earlier years 1 45.00 /
Requirement of Funds Amount Means of Finance
34.94
I Pressing creditors: 1 1 Export incentives 1 19.50 1
Amount
Undrawn term loans for
Margin for additional
working capital
The rehabilitation scheme envisaged a capital expenditure of Rs. 34.94
lakhs and allocated Rs. 57.90 lakhs to pay off pressing creditors. Undrawn term
loans of earlier years Rs. 45 lakhs and loans from Financial Institutions Rs.28
lakhs were the major sources of finance for the scheme.
13.20
Arrears of wages 17.70
Over due commission 10.00
Transport creditors 1 5.70
Arrear ST dues 4.55
Customs duty
-?!?
Total
-
Promoters contribution
Investment subsidy
57.90
1 15.50
13.00
10.00
New term loans:
IRBI 19
KSIDC 9
-
Total
28.00
1 15.50
Chapter 6
6.9.3 Rehabilitation Strategy
The rehabilitation scheme aimed to improve the overall profitability of the
company. This has been sought to be achieved through
i. the adoption of a better product mix which would gainfully exploit the
company's relative superior production facilities and market opportunities for
high value added items
ii, containing the additional borrowings
iii. improving the current ratio of the company by converting the current liabilities
into long term liabilities such as funding the arrear overdue interest,
segregation of irregularity in the working capital account and converting the
same into term loan and repayment of certain pressing liabilities
iv. augmentation of the company's working capital resources to facilitate smooth
flow of inputs to ensure uninterrupted production
v. waiver of penal interest on overdue liabilities and reduction in debt servicing
capacity of the company to accepted levels
vi. completion of the on-going modernisation scheme to enhance the installed
capacity of the company to the targeted 12000 TPA and to improve the quality
of the output and
vii. strengthening the management team by filling up the key functional positions
and delegation of adequate powers to the Chief Executive commensurate with
the tasks assigned to him.
6.9.4 Relief and concessions
6.9.4.1 SBT
i. Waiver of penal interest charged, if any.
ii. Conversion of irregularity in the working capital account estimated at
Rs.47.75 lakhs into working capital term loan carrying interest @ 1 3.5 percent
per annum.
iii. Conversion of principal portion of the outstanding against LCBR dues
estimated at Rs.113.80 lakhs into working capita! term loan carrying interest
@ 13.5 percent per annum.
Chapter 6 237
iv. Funding the arrear interest up to 31-03-1989 on the term loans as well as on
the proposed working capital term loans carrying interest @ 6 percent per
mum.
v. Rescheduling the repayment of the term loans so as to be payable for a period
of nine years commencing from 1990-9 1 .
vi. Sanction of need based working capital facilities of the company carrying
interest @ 15 percent per annum during the frrst seven years commencing
from 1989-90 and at 16.5 percent per mum hereafter.
6.9.4.2 KSIDC
i. Rescheduling the repayment of the term loans so as to be payable in nine years
commencing kom 1 990-9 1 .
ii. Funding the arrear interest up to 3 1-03-1989 on the term loans carrying
interest @ 6 percent per mu m. Funded interest shall be playable in four
years commencing from 1 989-90.
iii. To take up the case of the company with Government of Kerala for relief and
concessions such as sanction of IFST Loaddeferment of payment of sales tax
and to resolve labour disputes, if any.
i. Release of balance undisbursed amount of Rs.45 lakhs out of its earlier term
loans
ii. Rescheduling the repayment of principal portion of the term loans so as to be
payable in nine years commencing from 1 990-9 1 .
iii. Funding the arrear interest up to 3 1-03-1989 carrying interest @ 13.5 percent
per annum.
i. Permission to defer sales tax payable during 1989-90 and 1990-91. The sales
tax thus accrued shall be payable in 1992-93 and 1993-94.
ii. To permit the company to repay pending sales tax arrears over a period of two
years starting from 1992-93.
Chapter 6 238
iii. To recommend the case to Central Government to accord excise duty relief as
applicable to sick units.
iv. To ensure amicable industrial relations.
v. Exemption from power cut.
6.9.4.5 Central Government
i. Exemption from the provisions of sections 1 15(J) and 41 (I), Income Tax Act.
i i . Excise duty relief as appticable to sick units.
6.9.4.6 Workers
i. An undertaking to maintain production of 600Mt per month.
ii. To co-operate with the management in cost reduction measures.
iii. Not to resort to strike or any other disruptive measures in case of any minor
delay in payment of mear wages.
6.9.4.7 Promoters
i. To bring in interest free fresh funds amounting to the tune of Rs. 13 lakhs; out
of which Rs.6 labs being shortfall in the contribution committed by the
promoters at the time of sanction of second trench of term loans by IRBI and
KSIDC.
ii. To designate the Chief Executive as ED and delegate all powers of M.D to
him.
iii. To bring in interest free hnds to meet cost over-run / cash losses if any in
hture.
6.9.5 Projected Financial Position and Operating Results of SIWR
The rehabilitation scheme aimed to make the operations of the company
profitable by increasing sates and reducing interest charges. It projected the
financial position and operating results of the company for a period of 10 years
from 1989-90 to 1998-99. They are given in Table 6.3 1
Table 6.31:- Projected Financial Position and Operating Results of SIWR (Rs. in lakhs)
1 particulars 1 19891 19901
Financial Position:
(as on 31 March)
Fixed Assets
Current Assets
Cment Liabilities
Term Liabilities
Share Capital
Reserves & Surplus
Networth
Operating Results:
bear ended 3 1 March)
S.V.P
Operating Expenses
Operating Income
Interest
Net Profit (Loss)
I 1 L I
Chapter 6 240
Table 6.31 shows that successful implementation the scheme aimed at
making the operations of the company profitable in 1989-90, the networth positive
in 1993-94 and to wipe off the entire amount of accumulated losses by 1994-95. In
order to make the operations of the company viable the scheme projected a sales
target of Rs. 1279 lakhs in 1989-90, h. 1659 lakhs in 1990-91 and to remain at the
same level till 1998-99. To enhance the profitability the scheme proposed a
gradual reduction in interest from Rs. 1 1 7 lakhs to Rs.56 lakhs between 1 989-90
and 1998-99 by reducing term liabilities from Rs.695 lakhs to Rs.27 lakhs during
the same period.
In the case of SIWR the rehabilitation scheme could not be implemented
as scheduled due to the delay in providing finance by the Participating Agencies.
Only the promoter's contribution was received in time. The IRBI and the KSIDC
delayed the disbursal of the sanctioned loans. The export subsidy received by the
IRBI as the Operating Agency, was not disbursed at all on the ground that the
rehabilitation scheme was not working properly. The restrictions imposed by the
SBT in the sanctioned working capital limits aggravated the financial crisis and
the company had to reduce its capacity of operation, which affected adversely the
production schedule envisaged in the rehabilitation scheme. Cont rw to the
Government assurance, the imposition of power cut in all HT and EHT units in the
state also affected the day-to-day working of the company.
6.9.7 Financial Position and Operating Results of SIWR
In SIWR the rehabilitation scheme could not be implemented as per
schedule. It affected the performance of the company adversely. The sales
declined gradually and the company incurred losses continuously year after year.
The financial position and operating results of the SIWR after implementing the
rehabilitation scheme are given in Table 6.32.
Table 6.32:- Financial Position and Operating Results of SIWR (Rs. in lakhs)
Particulars
Financial Position:
(as on 31 March)
Fixed Assets (net)
Current Assets
Current Liabilities
Current Ratio
Share Capital
Reserves & Surplus
Term Liabilities
Debt-Equity Ratio
Accumulated Loss
Networth
Operating Results:
S V P
Other Income
Aggregate Income
Operating Expenses
Finance Charges
Source: Annual Reports
24 1
Chapter 6
In order to make the operations of the SIWR viable the rehabilitation
scheme projected a sales target of Rs. 1279 lakhs, in 1989-90 and Rs.1659 lakhs
from 1990-9 1 onwards. But due to the poor implementation of the rehabilitation
scheme the sales of the company were only Rs.609 lakhs in 1989-90 arid Rs. 898
lakhs in 1.990-9 1 and the company incurred huge losses of Rs. 13 1 lakhs and Rs.68
lakhs during the same period. 'It affected the viability of the company and the
-BIFR in November 1991 directed the Operating Agency to find out a new
promoter and suggest new revival proposals for the company. The Operating
Agency could not find a suitable promoter who can takeover the company.
The performance of the company continued to be poor in succeeding
years also. The company incurred a huge loss of Rs, 1 1 1 3 lakhs between 199 1-92
and 1996-97 making the accumulated losses at Rs. 1 8 16 lakhs and the networth at
the negative figure of Rs.1694 lakhs as on 31 March 1997. Figure 6.8 shows the
projected and actual sales and profit/loss of SWR.
1 2000 ,
Fig: 6.8:- Projected and &tual Sales and ProfitlLoss of SlWR
-500
t- Y Y 7 r r
Year
- Projected Sales - Projected Profit -Actual Sales -Actual ProM
The figure exhibits that SIWR could not achieve the projected sales
targets and the company incurred losses continuously year after year. Poor sales,
high operating expenses and heavy finance charges were the reasons for huge
losses incurred by SIWR. The average annual sales of SIWR after implementing
the rehabilitation scheme was only Rs.768.38 lakhs and the average Operating
Cost Ratio during the period was 105.6 1 percent. The amount of finance charges
increased from Rs. 1 1 1 lakhs to Rs. 183 lakhs between 1989-90 and 1996-97 due to
the accumulation of term liabilities from Rs.906 lakhs to Rs. 1742 lakhs during the
same period. Poor operating results and heavy losses incurred put the company in
deep financial crisis and left with no other alternative the company was laid off in
July 1997.
The failure of the efforts to find a new promoter and in the absence of
new proposals for the rehabilitation of the company the BIFR came to the
conclusion that the company was not viable and a show cause notice for the
winding up of the company was issued on 1 1 September 1995. Meantime the
Government of Kerala requested the BlFR to maintain status quo for a period of
one year to find out a new promoter and the Board accepted it in August 1996.
In SIWR defective implementation of the rehabilitation scheme due to the
delay in extending support by the participating agencies resulted in its failure.
Huge accumulation of debt and interest cost thereon also affected the profitability
of the company adversely. The company wanted a substantial reduction in debt by
arranging One Time Settlement (OTS) of dues with own hnd instead of re-
scheduling term loans after finding of interest.
6.10 Conclusion
Among the eight companies selected for the study only two government
companies, the Kerala Minerals and Metals Ltd (KMML) and the Steel and
Industrial Forgings Lid (SIFL) were able to come out of the purview of the BIFR
Chapter 6 244
after making their networth positive. The rehabilitation scheme implemented in
KMML became a success only because of the government policy to include
titanium dioxide in the restricted list of imports. Complete elimination of the
borrowed funds and interest charges by arranging One Time Settlement (OTS) of
dues to Banks and Financial Institutions ~ t h fund support from the Government
made the rehabilitation scheme in SIFL a success.
The liberal import of ceramic cores due to the change in the government
policy led to the failure of the rehabilitation scheme in Elcera Substrates Ltd,
Failure of the rehabilitation scheme to provide supportive measures to increase
sales resulted in the failure of the rehabilitation scheme in the Pigments India Ltd.
In Transformers and Electricals Kerala Ltd (TELK), the rehabilitation
scheme failed mainly due to inadequate sales, heavy interest charges, excess
personnel, low productivity and poor implementation of the rehabilitation scheme
due to diversion of funds. The delay in extending support by the participating
agencies to the rehabilitation scheme caused the failure of the rehabilitation
scheme in the South India Wire Ropes Ltd (SIWR).
In Aluminium Industries Ltd (ALIND) and Travancore Rayons Ltd
(TRL) in spite of the increase in sales, rehabilitation schemes failed mainly due to
the increase in operating expenses and heavy interest charges. If the rehabilitation
schemes had included effective cost control measures and steps to eliminate
interest by arranging OTS of dues, the schemes would have become a success.
Thus these findings are in agreement with the previous finding that the
major factors influencing the success of the rehabilitation schemes are government
policy, One Time Settlement (OTS) of dues, support of the participating agencies,
increase in sales and scale of operation.

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CHAPTER 6

CASE STUDIES OF COMPANIES

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