February 6: While petroleum companies in India are investing in building refining capacities and pipeline networks, none are ignoring their retail distribution network, that is the basic petrol pump. With the exception of some urban pockets, the highways and most other areas have a very limited presence of petrol pumps.It is this very constraint that has ballooned into a strong business opportunity for Avery India, which manufactures petrol pumps, (its second largest business), even though its basic business is to manufacture weighing machines, which has contributed substantially to the company's growth and profits last year.
Ever since refining companies tied up with foreign oil companies, the focus has shifted to upgrading the quality of the point of sale contact and increasing the distribution network.
This calls for more demand from companies like Avery India that produce this basic fuel-dispensing equipment. The potential of the business has already begun to be felt by Avery India. While itstotal revenues grew by 10 per cent last year, which included an hefty service income, revenues from the fuel pump dispensing business alone grew by 43 per cent as against a growth in volume of 26 per cent.
The revamp of existing petrol stations is also a priority, besides the setting up of new ones.
The demand from oil companies is such that the outstanding orders stand at over 2,100 pumps against a total supply of 1,800 pumps last year by Avery alone. The success of this business has been partly offset by the sluggish growth seen in the other segments, particularly in its main business of electronic and mechanical weighing scales.
Atco India, which also retails similar machines, has not had a very good time over the last year or so. Growth for Avery India from this business came painfully, at barely five per cent last year, with every chance that the current year will not be any better.
Despite the remarkable growth shown by its promising pumps business division, a fact that remains is that thecompany, which is funded entirely by equity, is unable to earn a decent return on capital employed (RoCE), which at 13.7 per cent (the return on equity will equal Roce in this case in the absence of debt) is very poor when compared with its cost (the net returns are negative), and robs the stock of any prospective value.
Atco lags behind
Had it not been for the lucrative fuel dispensing pumps business, the fate of Avery India as a stock could otherwise be gauged from what a stock like Atco India is going through. The company concentrates on the electronic weighing scales business and dominates the sector in the western region.
But slow sales of its products and investments in new capacities and products are taking their toll on the company as there has been a build-up of receivables and, subsequently, there is a strain on the company's capacity to turn a profit. The shares of this market leader are unfortunately trading at a three-year low.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
