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LML
The squabbles with Piaggio and a revitalised Bajaj Auto appear to have conjured up problems for LML, especially in the second half of the year ended September 1998. Although at first glance, the 39.21 per cent bottomline growth for the full twelve months impressive, a closer look reveals that profits were depressed by an additional Rs 21.94 crore. This was due to an exceptional write-off pertaining to an amount recoverable from Ession Synthetics. Furthermore, the problems for the company are clearly reflected in the second half, when profitability of Rs 11.25 crore has actually dipped 33.86 per cent when compared with the first half profits of Rs 17.01 crore.
Mirroring the problem for the company are the sales figures for the second half, where the company has managed to sell a mere 1.68 lakh units, which works out to a 9.95 per cent volume growth over last year. Interestingly, this has been achieved at a time when the scooter segment led by the market leader Bajaj Auto (inclusive of sales fromMaharashtra Scooter has posted a volume growth of 11.33 per cent) has registered a revival of sorts with a 9.29 per cent growth. More importantly, when one considers that the second half includes the important festive season, volume growth is unimpressive.
Another highlight of the company's financial performance, has been the squeeze on margins. In fact, even the operating margins for the full twelve month period have actually declined from 11.01 per cent to 9.53 per cent, which is in stark contrast to the buoyancy witnessed last year. Analysts state that this is due to increased ad-spend on new products. Furthermore, with the expansion project being executed on the existing production lines, disruptions and hence the drop in output could have resulted in higher cost overheads. However, a 18.28 per cent increase in interest burden to Rs 25.82 crore, as a result of LML's increased borrowings for the expansion, has further led to a drain on earnings. Furthermore a 23.81 per cent jump in the depreciationcharges and a higher effective tax rate of 26.14 per cent (only a provision for MAT was made last year) have all eroded earnings growth.
Thus, in the best interests of the company, it is imperative that the Singhanias ensure a swift end to the management problems with Piaggio. More so, since a long-drawn legal battle could well jeopardise the very motive of the on-going capacity expansion. LML would desperately require technological inputs for its planned scooter variants ranging from the 63 cc variety to the 200 cc variety. It is virtually inconceivable for LML to introduce these products through in-house R&D -- a fear mirrored in the company's stock which is currently trading at Rs 48.30, precariously close to its fifty two week low of Rs 47.60. This is indeed a far cry from the heady days enjoyed by investors, when the LML scrip was trading around the Rs 170 levels in April 1998. For the investors of Bajaj Auto, however, LML's problems could well turn out to be extremely rewarding.
RoltaIndia
Rolta India (RIL) currently quotes at around the Rs 60 mark at a P/E of 9. At this price, there appears to be ample scope for appreciation. The company has a virtual monopoly in the domestic market for CAD/CAM products. It has a galaxy of private sector clients comprising of Reliance Industries, Tata Chem, L&T and many others. Almost 50 per cent of its revenues come from government and public sector units like BHEL and HMT. Higher government spending in CAD/CAM despite the recession and increased mapping orders from global telecom companies should ensure adequate growth in the future. The company will be aided by the fact that it has a collaboration with Intergraph Corp Inc a company which has 90 per cent share in the global business of CAD/CAM. RIL has exclusive rights to market Intergraph machines wherein it gets to use Intergraphs software library base. Customer loyalty is assured as RIL becomes the single vendor for software requirements.
For the nine months ended September 30, 1998, RIL'stopline has risen by 43.29 per cent to Rs 88.37 crore whilst the bottomline has increased by 73 per cent to Rs 17.60 crore. More importantly for the third quarter, the net sales have soared to Rs 28.29 crore from Rs 16.42 crore and the net profits have risen by cent per cent to Rs 10.12 crore. Operating margins for the nine month period have increased to 48 per cent from 41.3 per cent whilst for the third quarter has risen to 51.43 per cent from 43.1 per cent. All this is because RIL has the lowest manpower costs prevalent in the industry. It has to be noted that other income as a percentage of PBT for Q3 has increased to 74 per cent from 60 per cent. High receivables has had an adverse impact on the cash flows and commensurately interest outgo has risen to Rs 2.82 crore from Rs 1.08 crore for Q3. RIL depreciates its computers at around 16 per cent whilst majors like Infosys, Satyam do so at 28 per cent. RIL has capex plans of about Rs 80 crore over the next two years for providing internet services and newsystems. Moreover, recently it has invested Rs 7 crore in setting up a subsidiary in Netherlands to largely focus on expanding markets in Europe. The company has a strong order book in excess of Rs 100 crore. RIL has entered into the business of mapping and data conversion to cater to the export market. It has achieved an expertise to convert telephone exchange records into Unix/Oracle. All this has translated into huge orders from telecom majors like British Telecom, Hong Kong Telecom and the government of Saudi Arabia.
Emcee (With contributions from Percy Dubash and AG Krishnan)
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
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This story was printed from Net Express located at http://www.expressindia.com. Net Express provides a portal to India, with news from The Indian Express and The Financial Express along with sites on travel and tourism, the entertainment industry, the power sector, the environment and much more.
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