Mumbai, June 1:Long after analysts decided that the stock was beginning to look expensive Swaraj Engines has continued to outperform the market baffling even those analysts that are bullish on the prospects of the company. The stock is trading near its recently created 52-week high and has risen by 40 per cent in the last six to eight months, trading at Rs 420 after adjusting for a 1:1 issue of bonus shares.

There are two driving factors for the stock. One is the results that the company is expected to announce on June 12, which is hoped to be a marked improvement over the previous year. The second is the fact that the company has been riding on the back of very strong growth in Punjab Tractors, which is both Swaraj Engines' promoting company and its only buyer of engines and engine parts.

Not surprisingly, both the offspring and the parent have the same discounting, between 21 and 23 times, and both trade at a substantial premium to the market (Punjab Tractors for its 1996-97 earnings while Swaraj Engines for its expected 1996-97 earnings).

The stock has already appreciated much ahead of the results as its earnings are expected to grow by 25 per cent to Rs 8.5 crore. This is not all. The company has increased its operating margins for each of the last three years, along with a reduction in costs. This was done by opting to produce some major engine components in-house. Growth will be more or less assured for the company, as Punjab Tractors has been expanding its own production capacities and has committed to increase its offtake of Swaraj Engines' products.

Punjab Tractors buys a little over 50 per cent of its requirement of engines from Swaraj Engines, which ensures at least a 75 per cent capacity utilisation of Swaraj Engines' capacities.

SmithKline reigns again

Confusion prevailed amongst industry observers as they saw a relentless rise in the stock of multinational subsidiary, Smithkline Pharma (a 40 per cent subsidiary of Smithkline Beecham Plc, UK) which has jumped over 18 per cent over the past seven trading sessions. As a result of this incessant buying the stock touched a new 52-week high on Friday on the Bombay and the National Stock Exchanges.

The stock price of Smithkline Pharma took a beating in the recent past after its UK based parent decided to transfer its well known brand Horlicks to SmithKline Asia (a 100 per cent subsidiary of Smithkline Plc). Just before this happened the company was involved in an unpleasant spat with shareholders over payment of royalty to its parent company for the use of its brands.

The rise in the price of Smithkline Pharma has come in the wake of rising interest in another of its sister concerns, SmithKline Consumer and in the midst of a major decline in values in other pharma stocks. Analysts, however, say that the company's expected first half performance for June 1997 is what is prompting buyers to pick up the stock.

And, according to market sources, this demand for the stock is originating from the renewed interest of a few foreign funds. These sources, also attribute this sharp rise to buying by a leading domestic private sector mutual fund. But the country's largest mutual fund is reported to be an active seller in the Smithkline subsidiaries.

On the Mumbai Stock Exchange (BSE), the share price of Smithkline Healthcare rose from a low of Rs 282 on May 14 to touch a new high of Rs 344.50 on May 30, against its previous 52-week high of Rs 342. The spurt continued to strengthen on May 30, when the stock touched a new high of Rs 354.50. The volumes at the counter have increased sharply over the past few days by about 89 per cent.

As per the data collated by the Mumbai Stock Exchange during the past seven trading session commencing May 14 to May 29, about 68,640 shares exchanged hands. Of this about 40 per cent was recorded in a single trading session on May 29.

On the National Stock Exchange (NSE), also an equal number of shares were traded. However, on May 29 the bull run could not be absorbed by the market which led to a circuit filter at Rs 352, where there were absolutely no sellers.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.