Growth in volumes of all its products has enabled Marico Industries to record an 8.5 per cent increase in the topline to Rs 109.33 crore for the first quarter of the current fiscal. The recent brand extensions under the umbrella brand `Parachute' have also contributed to the growth in turnover. Company sources claim that one of them, Parachute-Nutri Sheen, has created a new market in the hair-grooming category.

Though new products have helped in the growth in volumes, the company has also managed to cut costs considerably. Operating margins have improved slightly to 10.2 per cent, from the 9.93 per cent margin for the corresponding period last year. That this comes in the wake of a shortage of safflower (a major ingredient for Saffola) and reduction in prices of Parachute is commendable.

Though the fall in Parachute's price was a result of a drop in copra prices in the domestic market, the manufacturing efficiency of the Goa plant, commissioned last October, went a long way inimproving margins. The debt-equity ratio, which stood at 0.42 last quarter, has decreased to 0.08 this quarter. Financial charges, as a result, have reduced considerably to Rs 75 lakh. Depreciation charges on the other hand have jumped around 70 per cent, owing to the Goa plant. As a result, pre-tax profitability (PBT to sales) was almost the same at 8.6 per cent.

Tax shelters for the plant have brought down tax rates from 20 per cent to 15 per cent. All this has contributed to a healthy growth of 18.5 per cent in its bottomline. Marico can look forward to doing better than sustaining the present growth rate what with the launch of an innovative fabric-care product `Revive Colorfix'. Its scrip, however, is trading at a historical low P/E of 13. This can be attributed to the high dependence of the company's prices on that of the underlying commodity and the low liquidity it has on the bourses.

Hoechst Marion Roussel

Quarterly results can sometimes be misleading. The Q1 results of Hoechst MarionRoussel illustrate the point. At first glance, operating margins seem lower by a couple of percentage points, compared with the first quarter of 1997-98-a sign of weakness. Moreover, with the margins earned in the first half always about 1.5 times better than the second half, a drop in margins in the first quarter may be interpreted to signal a strain on earnings for the entire year.

But earnings in the pharma industry are dependent upon long-term investments in R&D and introduction of new molecules. Hoechst Marion Roussel introduced three new molecules in the first quarter, which included Frisium & Cefron.

The introduction of the new molecules increased the associated marketing expenditure, which hiked the operating cost. Launch costs are higher in the initial phase of new products' introduction, while sales take some time to pick up. New products introduced by the company in the last couple of years, namely Rifater, Rifadin and Insuman (human insulin), captured a major market with double-digit growth.Consequently, the sales turnover went up by 30 per cent in the first quarter, versus the same period last year.

The rupee's depreciation vis-a-vis the mark had raised manufacturing costs by 2.5 per cent. The company imports around 55-60 per cent of the raw material. Raw materials contribute 45 per cent of the cost of sales. With the rupee's depreciation by 8.7 per cent against the mark, the production cost rose by approximately 2.5 per cent.

Nevertheless, volume sales offset the reduced margins, and the net bottomline rose by 96 per cent. Apart from volume sales, the other important reason is the drop in the tax rate in this quarter by about 50 per cent, compared with last year. Whether this will be maintained for the full year depends on the export sales as a percentage of sales in the full year.

Thirumalai Chemicals

Achieving 50 per cent of last year's earnings in the first quarter itself is no mean job, especially with a slowdown in the industry. Thirmulai Chemicals has done this and shownthat it can effectively counter the effects of the Asian currency crises.

In the first quarter of 1998-99, the topline has seen a growth of 45 per cent to Rs 48 crore, against 1997-98's first quarter. This was partly due to the increased realisations from pthalic anhydride (PA) and maleic anhydride. The company says pthalic anhydride's price is ruling at Rs 26-Rs 27 per kg, while maleic anhydride prices are in the range of Rs 45 per kg.

The increase in pthalic anhydride's price is approximately 66 per cent from last year's prices of Rs 15 per kg. Moreover, indications are that prices of PA are still firming up. In addition, the capacity utilisation of PA has improved to 70 per cent in the first quarter, versus 40 percent in the first half of 1997-98. Demand from the pigment segment, which consumes 20 per cent of the output, grew by 25 per cent in the first quarter. Demand from the other two segments plasticisers and paints showed a modest increase of 10-15 per cent for the company.

The company alsogained from the drop in the cost of orthoxylene from $350 per tonne last year to $280 per tonne. Hence, even though the interest and depreciation charges have risen due to lower amount of interest capitalised and new capacities installed, the earnings grew by a phenomenal 217 per cent to Rs 5 crore.The stock market has obviously taken note of the enhanced performance and the price has shot up by approximately 25 per cent to Rs 56.5.

Emcee (With contributions from Mobis Philipose and Manish Saxena)