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Dr Reddy's
A 10 per cent sales growth for a pharmaceutical company like Dr Reddy's does not appear to be anything outstanding. The company has posted a turnover of Rs 126.12 crores for the first quarter of the current fiscal as against Rs 114.7 crores in the same period last year. This however, has to be viewed by taking into account the company's higher reliance on CIS markets in the first quarter of 1998-99, when 35 per cent of the annual sales was recorded in only the first quarter. As a result of lower exposure to exports, the contribution of international business has declined from Rs 23 crore to Rs 12.90 crore. Given these facts, the 10 per cent growth is not as bad as it looks.
The company's domestic formulations business has grown by 33 per cent, increasing its contribution to turnover to 47.87 per cent. However, as a result of poor export performance, contribution of the finished dosage business to turnover has fallen from 60 per cent to 58 per cent. In the bulk drug division the company'sexport performance is better than the domestic one. The division as a whole has registered a growth of 18 per cent, while bulk exports has grown by 33 per cent.
Though the company has not disclosed bottomline figures, the trend is likely to be better than that observed in the previous fiscal. Dr Reddy for the year 1998-99 recorded a turnover growth of 28 per cent, while its bottomline increased by only 5.98 per cent. This was mainly because of bad-debts to the tune of Rs 15.95 crore being written off. There is chance that the company might provide for a maximum of Rs 10 crore in the first half of the current fiscal as bad-debts (if required). It is unlikely that the company will make any-further provsion after this.
In the long term however, there is little that is stopping the company. Apart from the fact that its group company, Cheminor, which is growing at a much faster rate that Dr Reddy, is likely to be merged with it, the company is likely to benefit a lot from its research and developmentactivities. There are still eight milestone payments left, which will be higher than the three received by the company which aggregated around $6.25 million. Also the fact that Dr Reddy has recently been granted three product patents in the US, besides a 'notice for allowance' (a precursor to the grant of patents) for a couple of other molecules, ensures a very strong future for the company.
Oil Imports
It has become a routine for any one commenting on the surge in oil prices to suggest that India's import bills would rise as a result. Even today reports emanating from the OCC suggest that oil imports will rise by 32 per cent to $8.2 billion. Even the sensitivity calculations are presented which show that a $1 increase in the price of imported crude results in an additional outgo of $90 million. We do not deny the correctness of calculations. For the last half a century the OCC has planned production targets, sales targets and retail outlets in the country. Obviously it cannot be wrong. What mostof us seem to miss out is that India would soon become immune to the rise in oil prices and as such these calculations are irrelevant.
Irrespective of which way the crude oil price moves, value addition through production of refined products and export of surplus quantity would see to it that there is forex inflow rather than outflow. In fact a simple calculation would show that wherever the crude prices move, in terms of crude oil equivalents, imports ( product volume * value addition + oil imports) would keep falling and by the year 2002 we would have a surplus. If we add the exports of refined products, which is quite logical then the surplus would be generated by next year itself, showing that oil price is not materially important for a budgetary exercise.
Presently the value addition got from sales of refined products after refining is between 50 to 60 per cent. Depending on proximity to markets and avaliability of pipelines this can be even more. Also for every tonne of refined production, werequire approximately 1.03 times crude tonnage. For example in fiscal 1998-99 the imports of refined products was at 18 million tonnes. Considering that Reliance Petroleum would add 14 Mt of refining capacity in the country and approximately 6 million tonnes would come from IOC's Panipat refinery, the country along with 5-6 million of refined products imports already taken place, we would have a surplus in refined products in the current year itself.
Assuming a demand growth of 6 per cent, the surplus in Indian production would rise to 25 to 27 million tonnes by year 2001-2002. This would require additional oil imports of 43 million tonnes. But with exports of 25 million tonnes of exports which is equivalent to 40 to 42 million crude oil equivalents ( multiplication by value addition of 1.6), the gap of oil imports would fall in terms of crude oil equivalent and would eventually fall to zero. This would make every budgetary exercise related to crude oil price irrelevant.
India Gas
The cost forthe phase I (capacity:3 mtpa) of the LNG project, India Gas Co, coming up at Trombay has been pegged at Rs 2,530 crore. The company is a 50:50 JV between the Tata Electric Companies (TEC) and the French energy major, Total SA. Post expansion the capacity will be six million tonnes. The targeted commissioning date is March 2003 but the project is expected to go on stream six months ahead of schedule. The projected debt-equity ratio for the first phase is 65:35. Reports indicate that TEC's power station at Trombay, with a capacity of 1,350 mw, would provide an anchor market for the project and will consume around one million tonnes per annum out of the phase I capacity of three million tonnes. The balance will be supplied to industrial consumers and demand is not a problem at all.
This is an excellent developement for TEC for two reasons. One, the proposed project at Jojobera for all practicval purspoe is dead. The simple reason being that MSEB can not afford (even prior to DPC going on stream) to give thelicence area demanded by TEC and the company can't accept the licence area being offered. The only options available to TEC were to acquire captive power projects and diversify.Both the options are being exercised. Second, TEC is a cash-rich company. Including the investment in group companies, 1/5 th of the balance-sheet consists of financial assets. LNG is a great business and this should be reflected in the returns to the stakeholder though by way of tax free dividend. The captive consumption of fuel will not have any material impact on the performance of the power business because fuel is a pass through cost.The investment in LNG project will be the most valuable financial asset owned by TEC and this will be reflected in the price though only on project nearing completion. The good part is that an excellent investment is being made without any dilution of equity.
With contributions from Shishir Asthana, Manish Saxena & Urmik Chhaya
Copyright © 1999 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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