Financial Daily from THE HINDU group of publications
Wednesday, Sep 08, 2004
`We hope to be back in black by this fiscal-end'
Mr M.S. Zahed, Chairman and MD, HMT Ltd
Bangalore , Sept. 7
THE state-owned tractor-to-watchmaker HMT Ltd has been in red for a while. Straddled with huge debt, the company has chalked out a plan to bounce back to black through several new initiatives.
Business Line spoke to the Chairman and Managing Director, Mr M.S. Zahed, and the Group General Manager-Finance, Mr G.S. Shanthiraj, to get a glimpse of the financial turnaround plans. Excerpts:
What is your total debt on the books?
The majority part of borrowing was Rs 700 crore at 12.75 per cent interest rate to fund our voluntary retirement scheme. We have Rs 200-crore loan towards working capital and Rs 350-crore of overdue debt. The Government had given a guarantee of Rs 40 crore towards working capital mop-up in 2000 at 11.75 per cent interest rate and we are trying to roll it back at 6.5 per cent now.
How do you plan to retire it?
We are paying interest at the rate of 10-16 per cent on the Rs 350-crore debt. Our first objective is to retire that part at the earliest, either through a bond sale or through refinance at lesser interest. We are seeking Government guarantee towards a bond issue. We are confident of getting a new loan or bond sale at less than seven per cent interest. However, a final decision on choice of the instruments either bond or loan will be taken in a month's time. Moreover, we are requesting our banks to lower the interest on that Rs 200-crore loan to prime lending rate level. This will help us reduce interest cost by two to four per cent.
Our current interest burden is close to Rs 125 crore annually. We aim to reduce this to the level of Rs 80-85 crore in two years. We will make best efforts to return to profitability.
Do you think Government will guarantee another bond issue following ICRA's downgrade on defaulting on interest payments?
Of course. What happened is that there was a delay in interest payment, so ICRA downgraded our Rs 469-crore series bond. We will seek a rating from CARE if we go for another bond issue now.
What about your working capital?
Working capital needs were met by our banks. We have a consortium of six banks, which provide us with working capital. Don't you look at raising short-term loans through commercial papers?
No, we are not looking at raising short-term funds through CPs.
How feasible is your IPO plan to fund the MUV/SUV project?
We need a Government clearance towards that. We might float a special purpose vehicle to raise the money. With our brand name, it will not be difficult at all to raise the money. Moreover, it will be small amount, since we plan to outsource majority of the components.
What are your asset stripping plans?
Gross value of plant and machineries could be Rs 1,330 crore and unused land is to the tune of Rs 2,000 crore. We are looking at various ways to sell the excess land. Money accrued through such sales is used to pay off debts. We have realised Rs 110 crore towards such sale till now. Moreover, our brand value is estimated to be close to Rs 2,000 crore, though we have not resorted to any major brand valuation exercise in the recent past.
Do you expect to be back in black this fiscal?
We hope to be profitable by the end of this fiscal.
What is your cash flow position? Have you been able to reduce the debtor days?
There is a problem in cash flow and collection. However, we hope to make the cash flow very free and increase our collection capabilities. We are trying certain select methods like tying up with banks to finance HMT tractors to the farmers. We have already signed pacts with Punjab National Bank, State Bank of Mysore, Corporation Bank, State Bank of India and UTI Bank. Now we have appealed to banks to finance machine tools in a similar way.
What is your order book position?
In machine tools, we have close to Rs 260-280 crore of orders.
We have heard that there is salary-lag in your watches division. Could you explain the situation?
Yes, there is two-and-half months delay in salary payment in the watches division. We are hoping with new models, sales will pick up and this will help generate steady cash flow to take care of this gap. We have been able to cut down inventory in watches considerably. We have set a sales target of Rs 115 crore for the watches division. If that is achieved, the problem will ease quite a bit.
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