Today pharma companies insist on cash sales or dollar-denominated L/Cs. Dr Reddy's Labs, Hoechst Marion Roussel, Sun Pharma, Torrent Pharma, and Ranbaxy have significant sales coming from Russia and other CIS countries. Dr Reddy's and Ranbaxy, in particular, enjoy margins several times higher than those obtainable in India. For these companies, the drop in rouble rates would result in lower margins. Analysts believe that the drop in purchasing power could also result in lower volume sales. Dr Reddy's had seen an 84 per cent increase in sales in the first quarter. With the second quarter coming to an end, even if sales do drop in the third and fourth quarters by 30 per cent, on an overall basis, the company would be able to achieve its stated target.

Sun Pharma believes that since itcaters to the cardiovascular, psychiatry and other niche segments, there would not be much volume erosion. Torrent and Hoechst Marion Roussel have around 80 per cent of export sales to Russia. Exports contribute approximately 40 per cent of total sales. Hence for these companies, there would be drop in both topline as well as bottomline in the current year.

Tata Tea would also see lesser volume sales to Russia, and with reduced consumption of tea in that country, overall tea prices could further be dampened.

The rouble drop can also indirectly hurt the Indian steel industry. Russia is one of the bigger players in the industry. With a 33 per cent drop in rouble rate, we can witness a dumping of steel products in India. At the very least, world prices of steel and aluminium will be hit. This would hurt the domestic manufacturers. In addition, new entrants like Ispat have an export obligation to meet. Drop in prices will lead to further export losses.

Government buying commercial vehicles Thegovernment's decision to place orders for over 10,000 commercial vehicles to spur demand in the segment is part of its effort to boost demand. With first-quarter offtakes in the commercial-vehicle segment seeing a drop of 36.23 per cent to only 25,719 units (40,328 units last year), the move would be welcomed by manufacturers.

Purchases made by the central or state governments, however, would probably be at huge discounts to the market price. Going by the forecasts of flat offtakes in the commercial-vehicle segment in 1998-99, the order would nearly account for 10 per cent of total sales.

How the order would affect the manufacturers' fortunes would also depend on the vehicle category chosen. But given that these vehicles would probably be for use in the armed forces and various state government utilities, the offtakes would in all probability be in the MCV and HCV segments. That may boost earnings, as producers enjoy larger margins in that segment.

The order would be a one-off benefit for companies likeTelco and Ashok Leyland--that is, if the cash comes in, and the government orders do not merely result in an increase in receivables. But it should in no way be construed as a revival in the commercial-vehicle segment, especially since a turnaround in this sector is heavily dependent on an overall economic revival. More importantly, the prospects for the sector look increasingly bleak, owing to the increasing popularity of railway transportation, which is only hampered by an inherent lack of wagons.

Further, Telco and Ashok Leyland, which till now enjoyed a near duopoly in the commercial-vehicle segment now face the onslaught of competition in the form of Volvo, which could well end up gaining an important market share in a declining market.

Drop in oil prices: The 8 per cent drop in the prices of naptha, furnace oil, bitumen and LSHS, coming after a 4 per cent fall in prices in April would help the domestic industry.

Fertiliser companies would be the biggest beneficiaries, while aluminium andother non-ferrous metal manufactures would see their cost of manufacturing getting reduced partially. Polymer manufactures like IPCL who are more dependent on an indigenous supply of raw material would see their margins improving. Steel manufacturers will benefit indirectly if the utility services supplying power to them uses naptha.

For fertiliser manufacturers like Indo-Gulf, the cost of fuel and feedstock is 37 per cent of the total cost. On a conservative estimate, an 8 per cent drop in cost would directly benefit the company up to Rs 12 crore, depending on how long the price fall will continue. Likewise, aluminum producers also consume petroleum-based fuel in a large proportion. Hindalco, in particular, would also see its production cost come down by 1.5-2 per cent.

Polymer-manufacturing concerns like as IPCL, 50 per cent of whose raw- material requirement of naptha is to be sourced from India itself, would greatly benefit from the drop in naptha prices. Moreover, the cascading effect would see adrop in prices of downstream products required for making polymers. IPCL would be saving a minimum of Rs 65 crore this fiscal if the price trend continues. Although the finished polymer prices have dropped by 35 per cent in the last 15 months and are expected to fall further, the savings in raw materials would offset the impact of lower finished goods' prices.

The cost of fuel oil, furnace oil, etc, do not form a significant portion of the cost of steel manufacturing. However, companies like Essar Steel, which buys power from Essar Power, could benefit from lower electricity charges. But for Tisco and SAIL, who buy power from coal-based power plants, the effect of a drop in fuel prices would be negligible.

With contributions from Manish Saxena and Percy Dubash