The turnaround story

Krishnan Thiagarajan

THE first quarter of 2000-01 saw quite few corporate turnarounds.

For this study, `corporate turnarounds' are defined, broadly, as companies that recorded post-tax earnings in the first quarter of 2000-01 against losses in the corresponding previous period. In a Business Line ranking of companies based on profits made in Q-1 of 2000-01, the prominent turnaround instances were Jindal Vijayanagar Steel, ITC Bhadrachalam, Advani Oerlikon, Esab India, Nocil, Sun Infoways and Titan Industries.

The firm price trends in steel since early 2000 and the sharp rise in volumes of hot-rolled coils helped Jindal Vijayanagar Steel turn around. Against a loss of Rs. 25.31 crores in the first quarter of 1999-2000, it recorded a profit of Rs. 25.39 crores this first quarter. However, it remains to be seen how long this positive trend would be sustained.

Another major turnaround story was ITC Bhadrachalam, whose earnings performance was bolstered by a sharp volume growth in paperboards and relatively firm trends in prices for paper in the first quarter. As the volume growth is likely to be maintained, the turnaround in performance, with a post-tax earnings of Rs. 10.65 crores, may be sustained.

The improvement in the demand for automobiles and steel appears to have helped Advani Oerlikon and Esab India, welding electrode manufacturers, to manage a turnaround in fortunes. Among the two, Esab India was the bigger beneficiary of this demand growth. While it recorded a profit of Rs. 3.13 crores in the first quarter against a loss of Rs. 1.25 crores, Advani Oerlikon registered a profit of Rs. 0.07 crores against a loss of Rs. 2.1 crores in the corresponding previous quarter.

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The other surprising turnaround candidate was Sun Infoways, which recently made a splash by making an all-stock deal for Zap Infotech for Rs. 475 crores. It appears to have effected the turnaround by focussing on the wireless technology arena. Through the acquisition of Zap Infotech, which has expertise in software solutions and product development for the converged network environment, Sun Infoways (formerly Best Mulyankan) is aiming to become a wireless major.

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The cyclical downturn of certain segments has also contributed to a reversal of this corporate turnaround trend. The companies falling in this category are those that recorded post-tax earnings in the first quarter of 1999-2000, but slipped into the negative territory in the first quarter this year. Some of the prominent instances are Eveready Industries, Prism Cement, ACC, Oswal Chemicals, Ceat, Uniflex Cables and CESC.