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FEB. 11, 2007
 Cover Story
 BT Special
 Back of the Book

Taxing Times
The phase-out of central sales tax is yet another move towards ushering in the national goods and services tax (GST). The compensation to the states, in lieu of CST phase-out, will include revenue proceeds from 33 services currently being taxed by the Centre as well as 44 new services of an intra-state nature that will be traded by the states. However, VAT is the way forward, though much needs to be done to iron out the anomalies in the current VAT regime.

India, Ahoy!
Indian investments overseas are growing and how. For instance, total Indian investment in Latin America and the Caribbean has topped $3 billion (Rs 13,500 crore) so far. The latest investment is by ONGC Videsh, which acquired an oilfield in Colombia for $425 million (Rs 1,912.5 crore). Earlier, ONGC bought an offshore oilfield in Brazil for $410 million (Rs 1,845 crore).
More Net Specials
Business Today,  January 28, 2007
Resurrection Roadmaps
These companies have several things in common. They had once promised to deliver the moon to their investors, climbed meteoric heights on the bourses and then come crashing down. Now, their promoters are trying to rebuild their edifices. Will they be second-time lucky?
Morepen's Suri (in happier times): He is now all set to launch a host of new drugs in the international market
They were all once favourites of investors. Their scrips, without exception, scaled Mount Everest on the stock exchanges before plunging below sea level. Morepen Laboratories, Himachal Futuristic Communications (HFCL), Pentamedia Graphics and Silverline Technologies were all brought down by a combination of bad luck, bad timing, poor decisions and corporate over-reach. Now, they are all planning comebacks.

The 9/11 blasts in the us contributed directly to Pentamedia's and Silverline's misfortunes. Says Ravi Subramanian, Chairman & CEO of Silverline: "The dotcom bust and the 9/11 terror strikes in the us completely changed the business environment and got us into a financial mess." Most of its receivables turned bad, and the massive debt it had taken on to finance its expansion brought it to its knees, and led to Subramanian losing his 14-acre mansion in New Jersey. The same scenario also sank Pentamedia, which bet big on animation films, for which the United States is the main market.

In Morepen's case, it was the 90 per cent fall in the price of its bread and butter prime bulk drug Loratidine, from $8,000 per kg to $1,000 per kg that brought it down. The company defaulted on its loan repayments; banks froze its working capital credit line, thus, making it impossible for Morepen to survive in the cut-throat export market. And HFCL suffered in the absence of capex in the landline and broadband segments of the telecom market and the fact that it did not have a presence in the mobile telecom space.

Incidentally, HFCL, Pentamedia and Silverline were also tainted by their alleged association with Ketan Parekh. Now, ironically, it is the same stock market that is throwing these companies a lifeline. "Investors are funding these companies (and, thus, enabling them to pay off their debts) only because the markets are rising," says Sameer Koticha, Executive Director, ask Raymond James Securities.

Morepen Laboratories
Betting on High-end Drugs

Silverline's Subramanian: Focussing on IT and BPO sector
Morepen Laboratories is planning to place 25 per cent of its equity with a group of foreign banks and large domestic investment banks to raise Rs 400 crore. It is also settling most of its outstanding debt of Rs 750 crore by making a one-time payment of Rs 130 crore. Says Sushil Suri, CMD, Morepen Laboratories: "Going forward, we will concentrate only on formulations and high-end products that enjoy higher margins." The company's target: a turnover of Rs 450-500 crore by 2008-09. It also has 20 bulk drugs that are ready for launch in the international market. The biggest one is Atorvastatin (Lipitor) which enjoys a global market size of Rs 60,000 crore and Monteluakast (market size Rs 30,000 crore). But it's a highly competitive market and Morepen will have to really extend itself to succeed.

Adjusted share price*: Rs 16.28
All-time high adjusted share price: Rs 241.8 on February 11, 2000
Promoter: Sushil Suri, CMD
Promoter's stake**: 33.33 per cent
Turnover (2005-06): Rs 127.01 crore
Loss (2005-06): Rs 23.1 crore
*As on January 15, 2007 **As on September 30, 2006
Source: CMIE

What went wrong with the company:

The fall in prices by 90 per cent of its prime bulk drug Loratidine saw the company defaulting on the repayment of bank loans; lenders froze the company's working capital facilites, thus, making it practically impossible for it to operate in the export market. This sudden and sharp crash in prices was due to the product being shifted from the prescription (Rx) category in the US to the over the counter (OTC) category which is not funded by insurance.

How it plans to come back:

Going forward, the company will concentrate more on formulations and finished dosages that enjoy high margins. It has raised money from investors that it is using to pay off most of its debt.

Silverline Technologies
Focussed on the IT Sector

Plans to enter the gaming market
The company has cleaned up its books. A one-time settlement with banks, wherein it paid off Rs 60 crore in lieu of outstanding liabilities of Rs 150 crore, gave it some breathing space. It raised funds by selling properties in Chennai and Mumbai for Rs 30 crore and by raising Rs 25-30 crore through a structured financing deal. It also demerged its animation division into a separate company, in order to unlock value, and increased its focus on the IT, ITEs and BPO businesses. "Over the next two years, we should be able to post a turnover of over Rs 750 crore," says Subramanian.


Adjusted share price*: Rs 14.66
All-time high adjusted share price: Rs 1,395 on February 22, 2000
Promoter: Ravi Subramanian, Chairman & CEO
Promoter's stake**: 0.03 per cent
Turnover (2005-06)#: Rs 26.33 crore
Profit (2005-06)#: Rs 3.66 crore
*As on January 15, 2007 #Figures are June-ended **As on September 30, 2006 Source: CMIE

What went wrong with the company:

Was too ambitious about e-com and dotcom. When the IT bubble burst in US and following the 9/11 terror strike, the company couldn't sustain large overheads. The unsuccessful acquisition of Seranova also piled up debt that it couldn't service.

How it plans to come back:

It has paid off all its debt through a one-time settlement and has also ventured into the animation business which it will pursue through a separate company. Plans to focus on the IT, ITEs and BPO spaces and grow through the inorganic route taking advantage of labour arbitrage.

Pentamedia Graphics
Demerge and Grow

The company has demerged its exhibition business, Mayajaal, into a separate company. Says V. Chandrasekaran, Chairman and CEO of Pentamedia: "Mayajaal has six theatres that can relay the same film in six languages simultaneously. It's totally debt-free and shareholders will enjoy the benefit of its high-value real estate holdings." Pentamedia will now look after distribution and pre-production for its entertainment division, while Mayajaal will take care of production. "We will also be able to sell shares in both companies to private equity players," says Chandrasekaran, who is also planning to enter the gaming market.


Adjusted share price*: Rs 5.52
All-time high adjusted share price: 2,130.91 on February 11, 2000
Promoter: V. Chandrasekaran, Chairman & CEO
Promoter's stake**: 0.04 per cent
Turnover (2005-06): Rs 25.1 crore
Profit (2005-06): Rs 2.53 crore
*As on January 15, 2007 **As on September 30, 2006 Source: CMIE

What went wrong with the company:

The 9/11 terrorist strike in the US. With companies in that country going bankrupt, Pentamedia's dues weren't paid. Result: the company's profitability was affected.

How it plans to come back:

Today, 80 per cent of the company's revenue comes from its own work. It is also planning to enter the gaming market and has also acquired two companies, Singapore Animasia and Kingdom Animation, which will help with distribution and 2D animation job work.

Himachal Futuristic Communications
Targeting the Export Market

HFCL's Nahata: Has tied up with telecom giant Qualcomm to build CDMA equipment
Says Mahendra Nahata, MD, HFCL: "We have now got into the mobile technology and manufacturing space. Earlier, we didn't have any presence in this segment; this was the real cause of our downfall." The company has tied up with Qualcomm to build CDMA equipment for private telecom operators and enjoys an order book of Rs 800-900 crore, which it hopes to increase to Rs 1,500 crore in the next year. "We will focus on exporting our products to Russia, South-East Asia and SAARC countries," says Nahata. HFCL earned a net profit of Rs 47 crore for the first-half ended September 2006 on revenues of Rs 475 crore. The company has also restructured its debt of Rs 800 crore by extending the repayment timeframe and negotiating a lower interest rate. Its alleged association with Ketan Parekh, however, continues to haunt it. Nahata defends himself. "It's unfortunate that we are being victimised," he says. -additional reporting by Nitya Varadarajan


Adjusted share price*: Rs 24.40
All-time high adjusted share price: Rs 2,552.9 on March 8, 2000
Promoter: Mahendra Nahata, MD
Promoter's stake**: 2.35 per cent
Turnover (2005-06): Rs 759.2 crore
Loss (2005-06): Rs 916.5 crore
*As on January 15, 2007 **As on September 30, 2006
Source: CMIE

What went wrong with the company:

It did not have a presence in the mobile infrastructure and technology space. Consequently, when the landline and broadband segments were hit by a downturn, it did not have any alternative avenues to generate revenues from. The association of the company and its promoter with tainted broker Ketan Parekh also had an impact.

How it plans to come back:

HFCL has increased its focus on turnkey implementation and now provides what it calls "complete telecom solutions". It has also entered the mobile technology and manufacturing space and is making CDMA equipment in collaboration with Qualcomm. This, it hopes, will enable it to emerge as a major player in this lucrative segment.

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