Selling out with pride

The centre is going ahead with its plans of disinvesting in the Chennai-based Rs 361 crore (Rs 277 crore in 1998-99) telecom equipment manufacturer, HTL Ltd. The government had appointed  KPMG as its global advisor to implement the Cabinet's decision to divest 50 per cent stake in the public sector unit. The last date for expressing interest in HTL by prospective buyers closed on January 24, 2000. While company officials are tight-lipped on the issue, the next step in the disinvestment process is to prune the buyers' list, and then ask for a bid, following the due diligence audit.

"The entire process should close by March 2000," says Lakshmi Menon, chairman and managing director, HTL. For telecom equipment manufacturers like Siemens, Motorola, Ericsson, Alactel and the basic service providers, the 40-year-old HTL has several advantages that could make it an attractive buy. The company has been trimming and fattening itself, all in the right places.

Product portfolio

Take, for instance, its product portfolio. From a single product company making just teleprinters till 1993-94, HTL transformed itself into a switching, transmission, data and access major, catering to the needs of the Department of Telecommunications (DoT) and Mahanagar Telephone Nigam Ltd (MTNL). And it managed to cope fairly well with increasing competition and DoT dictating terms and conditions. The fierce competition led to the number of players getting reduced from 34 to eight and HTL forged ahead, claims Menon. As against 0.83 million lines (cumulative line capacity of all exchange units sold by the company last year) HTL is targeting a supply of 1.5 million lines of switching equipment (C-DOT + EWSD), which is 20 per cent of DoT's procurement. Though HTL is assured of 10 per cent of DoT's orders, it has to supply at the price quoted by the L1 bidder. "The order is assured but not the price," says J. A. G. Rajadurai, senior general manager (projects).

Despite the limitations of a PSU, HTL has been consistently winning prestigious orders against stiff competition. For instance, the company is executing two orders, worth Rs 12 crore, on managed leased line data network (MLDN) for Bombay Stock Exchange. In addition, the company has also bagged a Rs 10 crore order for Internet access nodes from Tamil Nadu Telecom Circle. Capping that is the Rs 50 crore order for a synchronous digital hierarchy (SDH) range of products for long haul transmission. According to S. S. Shekhawat, senior general manger (R&D), HTL has several firsts to its credit: like making modems indigenously and coming out with 64 Kbps MLDN lines.

HTL has tie-ups with several multinationals: Siemens for switching systems; Motorola for wireless local loop (WLL) telephone systems; Tel Labs for cross connection systems. In addition, HTL is likely to sign another technical agreement with UT Star Com, USA, for digital local loop on fibre.

Financially speaking

On the financial front too, HTL seems to be an attractive buy. The company's low equity base of Rs 15 crore is attractive, even at a premium. Further, unlike several other PSUs which are on the block with negative net worth, HTL's net worth stands at a healthy Rs 45 crore and its book value per share is Rs 35 (to go up to Rs 37 this fiscal end). Profit after tax stands at Rs 6.83 crore. The company's long term borrowings is around Rs 12 crore, of which Rs 5 crore is from the government of India. According to Menon, the company's request to the centre for conversion of the loan and accrued interest into equity is still pending a decision. With a EPS of Rs 45.55 -- share par value Rs100 -- the centre should be fetching an attractive price.

Another company with similar operations, ITI Ltd, is currently being quoted at Rs 53 on the bourses. That aside, HTL is sitting on vast acreage of prime property in Chennai, the market value of which would be high. Of the 66.91 acres, an area of 15.09 acres was acquired by HTL under lease cum sale agreement from the government of Tamil Nadu and the final cost is yet to be decided upon.

Apart from fattening its bottomlines, HTL has been trimming down its workforce over the years. From 1800 workers in 1990-91, the company has reduced the numbers to 1,170 as on the last day of March 1999, through VRS and normal retirement. Last fiscal, HTL paid Rs 11.24 crore to 485 workers as VRS compensation out of funds it received from the National Renewal Fund. "About 200 workers have shown interest in VRS and as and when funds from NRF reaches us, we will settle their accounts too," says Menon. HTL also settled the accounts of 73 workers out of its funds last year. As a consequence of these measures, the contribution per employee during 1999-2000 nearly doubled to Rs 5.44 lakh (Rs 2.97 lakh).

For the current fiscal, Menon is targeting a turnover of Rs 430 crore -- a 20 per cent jump over last year -- and a profit before tax of Rs 11 crore. She hopes to increase the turnover to Rs 520 crore in 2001 and Rs 610 crore the following year. For the present, HTL is eagerly looking forward to the completion of field trials of its WLL on CDMA technology. "Sites in Bihar have been allotted for validation of our WLL system for rural areas," Menon says. According to her, the company's WLL systems will use EWSD switches (manufactured by HTL) for urban and SBMs for rural applications alongwith Motorola radios.

When asked to compare and contrast the company's WLL system with the Cordect systems developed by IIT- Madras, Menon responds: "Our per line cost will be between Rs 6000 and Rs 7000 and the reach radius of the base station is 20 km. Cordect's price is about Rs 17,000 and the base station reach is 4 km."

Having the capability to manufacture the printed circuit boards and with plans to localise major portion of hardware, Shekhawat said that HTL will not be hit by the recent upward revision of customs duty on WLL systems. That aside, the other focus area for HTL is MLDN, HDSL, digital cross connects and digital loop carrier system. Last year, these products fetched the company around Rs 20 crore. According to Menon, the current year is expected to exceed that figure.

Building on exports

Of late, HTL has become active on the export front. Last year, the company sold public call office monitors, charge indicators, main distribution frames and line jack units to Sri Lanka and Ethiopia, which earned it Rs 84.30 lakh. HTL has also developed a 20-channel radio, exclusively for the export market. While the apprehension about their future is palpable amongst the employees, HTL, as a company, is on a strong wicket vis a vis competition. "The opportunities are huge with DoT adding 50 lakh lines every year. We can weather any storm with our strengths in switches, transmission and access products," says Shekhawat confidently. "Like the private sector, we will also provide vendor finance to tap orders for our equipment from the private basic service provider," adds Menon.

What will happen to the tie-ups with the multinationals, with Menon's plans on increasing turnover, are all open questions for now. A lot will depend on who buys into HTL and what the thinking of that company is. But the fact remains that HTL is among the few PSUs which, even on the verge of disinvestment, can talk with so much confidence. And pride.

Five companies want HTL

Five parties have expressed interest in acquiring 50 per cent of the
centre's stakes in telecom equipment manufacturer, HTL Ltd. These include Alcatel, Motorola, MTNL, Reliance and Tamil Nadu Newsprint and Papers Ltd (TNPL).

It may be recalled that the centre, as a part of its disinvestment
programme, decided to offload 50 per cent stakes in the Rs 361 crore HTL to a long term strategic investor and had appointed KPMG India Private Ltd as its global advisor. After one extension, the last date for parties to express interest in HTL closed on January 24, 2000.

While the reasons are understandable for Alcatel, Motorola (telecom
equipment manufacturer's), Reliance, MTNL (basic service provider's), to be interested in HTL, what has surprised many is the paper maker TNPL's interest. For the past one year, TNPL has been toying with the idea of acquiring a couple of paper units and also diversifying into the infotech sector. While its proposal to acquire the Karnataka-based Mandya Paper Mills is pending a decision at the centre, expanding its current paper production of 1.80 lakh tons per annum (tpa) requires massive investments. Yet, TNPL has decided to ride the IT bandwagon. As a matter of fact, the company has
chosen a person to chalk out a strategy to enter the IT industry.

With telecom and IT converging and with HTL having the capability to make Internet related hardware, apart from other equipment, TNPL has decided to try its luck in acquiring HTL.

The next step in HTL's disinvestment process is choosing the Qualified
Interested Parties from among the five parties who have now expressed interest. Meanwhile, new ideas are being floated on the HTL disinvestment issue. One that is doing the rounds is that the government may download a higher percentage, say 74 per cent, as in the case of Modern Food Industries, rather than the stated 50 per cent. What should be noted here is that the government extended the
date for submission of interest from January 10 to January 24, owing to the poor initial response from industry.

The other related development that might have a bearing on the HTL
divestment programme is the government's decision to chalk out a detailed disinvestment strategy afresh. But one thing is clear: whosoever succeeds in getting control of HTL will also inherit 21.02 acres of prime land -- 15.93 acres purchased by the company in Guindy, Chennai, and 15.09 acres leasehold land at Hosur, available for subsequent purchase. According to real estate people, the market value of HTL's land in Chennai would be in the region of Rs 30 crore.

Apart from this, HTL has 35.89 acres assigned by the government of Tamil Nadu for the purpose of a factory, road and colony. In Chennai, the company has put to use only around seven acres.