Teething problems

He Centre is watching help­lessly as Telangana and Andhra Pradesh slug it out over issues relating to the bifurcation of resources meant for governance of the two states, even after one year. Be it the division of the premises of the secretariat and public sector institutions to the High Court, the sharing of IAS and IPS officers, irri­gation, power, common entrance tests to engineering and medical col­leges, the governor’s role and mainte­nance of law and order – every issue of administration has become a bone of contention. Even the allocation of all-India service officers has been delayed, despite the Centre appoint­ing a five-member Pratyush Sinha Committee to examine the issue.

As for the division of the state’s assets and liabilities between the two successor states, the Comptrol­ler & Auditor General’s figures say that public sector units in the erst­while Andhra Pradesh have invested ?64,426 crore and employ 258,000 people. On 29 May 2014, the gover­nor asked all these units to expedite demergers and an expert committee headed by retired IAS officer Sheila Bhide was appointed for the pur­pose. However, only one of the 89 units has been formally demerged so far.

Other disputes also rage. For instance, the two states are in legal battle over funds utilisation. They have also held separate entrance
examinations for the engineering and medical colleges. The Centre’s hands appear to be tied, because it cannot afford to annoy the AP chief minister N. Chandrababu Naidu, who is a key ally. Naidu is already sore at the Centre for not helping him out with sufficient funds to construct the new capital.

Take the case of the AP State Road Transport Corporation (APSRTC), which has been asked by the Bhide committee to prepare a plan for the division of assets and liabilities within two months. As tense employees and workers debate what lies in store for them, the management faces a formi­dable challenge. Unlike the allocation of employees, which was a smooth affair and is almost done, division of assets and liabilities is a bone of contention between the two states.

Employee worries

The Telangana State RTC was to for­mally start functioning as a sepa­rate entity from 3 June – but this will be only on paper. What wor­ries employees of the APSRTC is the fact that most properties of the pub­lic transport giant in the undivided state are located in Telangana, and union leaders in that state are not willing to share them with their AP counterparts.

“The APSRTC in the undivided state had common assets worth ?50,000 crore. Of them, properties valued at nearly ?35,000 crore are in Telangana.

We want the government to follow the stipulated 58:42 ratio (for AP and TS) in the distribution of both assets and liabilities,” says Y. Venkateswara Rao, deputy general secretary, APSRTC Employees’ Union. Besides land, the APSRTC will need funds to the tune of ?800 crore to create facilities like a hospital similar to the one at Tarnaka in Secunderabad, a bus-body building unit, a central office akin to the exist­ing Bus Bhavan, a printing press, kaly- ana mandapam, guest houses, central stores and a training academy.

The ruling Telangana Rashtra Samithi called for a state-wide bandh when the Centre promulgated an ordinance transferring villages in seven mandals of Khammam district to Andhra Pradesh. The Telangana government also dismissed the Cen­tre’s suggestion to form a joint force with the police of both states to main­tain law and order in the joint capital The Centre cited the AP Reorganisa­tion Act, 2014, granting special pow­ers to the governor for law and order but the TRS government contested it saying it was a state subject.

Nevertheless, there are ampin indications that Hyderabad will con­tinue as joint capital for 10 years, as was originally decided. Recently, thr budget sessions of both state assem­blies were held simultaneously arc without incident. The idea of hav­ing Hyderabad as the joint capital o:| Telangana and Andhra Pradesh foi some more time appears to have been accepted by most people, though the city of pearls has seen political contestations from both sides.

Fortunately, there have been w incidents of violence and neither ha there been a flight of capital fro: the city, migration of entrepreneur or distress sale of land and buildings Even the film industry, dominated hi fat cats from Seemandhra, continue to be entrenched in Hyderabad. An; it is likely to remain there, being til base for major film production ce: tres, such as the Ramoji Film Cr and other studios. Any stagnation real estate has been from the genea slowdown in the economy and not# a result of bifurcation blues.

» BAKESH I(» rakesh.joshi@businessindiagroup^B

JW“ ain Irrigation Systems Ltd (JISI.) has shown a great deal of grit and resilience lately. The Jalg- aon, Maharashtra-based com- V pany is gradually getting back o its groove, after it took a bold but conscious move in 2011-12 to tweak the model of its micro irri­gation (also often called drip irriga­tion) systems (MIS) business, which accounted for over 47 per cent of its overall revenue. In a sharp departure from its earlier approach, the second largest micro irrigation player in the world after Netafim of Israel, decided to adopt a new stand, where it now follows a ‘cash-and-carry’ model. In other words, the ?6,200 crore com­pany sells its systems to dealers/ farmers on full payment basis, even as farmers pursue subsidies with the government agencies, as against the earlier times when the company would sell at a low price and take responsibility for collecting subsidies from the government.

Thus, any delay in subsidy pay­ment by government is now borne by the farmers or dealers directly. In recent years, the company’s business was hit hard due to a high subsidy burden (receivables from govern­ment), leading to much higher work­ing capital requirements and rising interest costs and, in turn, increased debt. In order to encourage drip irri­gation systems, state governments provide subsidies ranging from 40 per cent to as high as 80 per cent to farmers. Currently at 5 per cent, the penetration of micro irrigation is abysmally low in the country, even as availability of water is becoming a major issue, jisl offers a complete MIS solution including a wide range of precision irrigation products in drip irrigation systems as well as sprinkler irrigation systems. Specifications of these products vary from one crop to another, depending upon their irri­gation requirements. Besides, it also provides services from soil survey, design engineering to agronomic supports. It also undertakes turn­key projects for total agricultural development.

This structural change has seen the company’s receivable collec­tion cycle, which peaked 369 days in

March 2011, coming down at about 190 days at present and the same is expected to stabilise at, say, 120-150 days in the next couple of years. JISL has so far managed to implement its new model in four states – Maharash­tra, Tamil Nadu, Madhya Pradesh and Karnataka (which represent 50 per cent of the company’s MIS reve­nue). Since Gujarat (which accounts for 10 per cent of its revenue) boasts one of the most efficient subsid­iary disbursement mechanisms, jisl has deliberately tried to keep the state out of the purview of its new
business model. The new approach : has already started bearing fruit.

All these have resulted in freeing cash amounting to about ?700 crorej into the system. With these efforts the company’s reliance on debt hasl reduced and analysts believe that] with the rising income, debt will start! to fall in the years to come. The debt! equity ratio, which hovered around! 1.9 during 2012-13 and 2013-GI has improved to around 1.7. On 39 March 2015, the company’s debJ stood at about 13,936 crore, where.-1 the government subsidy receivable*

 

 

March 2015 (%)

Shareholding pattern

 

were ?300 crore, as against ?970 crore in 2011-12. Of the total debt, 43 per cent is long-term loans, while the remaining is short term loans,

accrued due to the compa­ny’s higher requirement for working capital.

While J1SL, which boasts about 50 per cent share in the domestic MIS irrigation market, tried to improve upon its balance sheet, it also had to encounter the harsh real­ity of declining sales of its micro irri­gation systems as farmers have to pay the entire amount upfront. In fact, sales of MIS systems declined by almost 25 per cent in 2012-13. How­ever, the last two years have wit­nessed a bounce-back in sales, which grew by about 20 per cent in 2013-14 and 18 per cent in 2014-15. But the company has not been successful in impressing investors. The last couple
of years have been slug­gish for the stock, even as the company tried to bring down its debt. On the BSE, the stock moved from 170.60 on 4 June 2013 to a high of around 1127 on 4 July 2014. But, thereafter, it gradu­ally slipped to a low of about 156 as on 12 May 2015. With a market cap­italisation of about 12,725 crore, the stock currently quotes at about 161.

What have been challenging for the company are the higher interest rates, coupled with fluctuating poly­mer (basic raw material) prices and unfavourable currency movements. Even though the sales suffered a bit, the bottomline got eroded. After reg­istering a meager profit of 14.50 crore

 

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