A 19 per cent growth in turnover for Grasim has been mainly from VSF, and the turnover from VSF had a similar growth rate. Lower operating margins, from 20 per cent to 17 per cent and lower other income component has resulted in net profit declining by 15 per cent.

A shutdown of SIV Industry's plant coupled with higher demand for blended yarn has helped Grasim post decent growth in the VSF division. However, other divisions have not been as lucky. The margins of the cement division have been lower, in line with those of other players in the industry. Sponge Iron too has been affected with cheaper imports of scrap. Margins of sponge iron will continue to remain affected as gas prices have been increased and scrap is likely to be a cheaper alternative, as for the first time Japan is generating more scrap than it is consuming. However, to the credit of the company it has managed to reduce its inventory, which is apparent from sales volume which is substantially higher than production.

The company's caustic soda plant has shown volume growth, but margins were affected as product prices have remained low.

Growth in the second half of the current fiscal will continue to depend on growth in VSF. Other divisions are unlikely to contribute substantially to the bottomline.

Thermax turnaround?

The South-East Asian crisis has come at the worst possible time for Thermax. Due to the slowdown in the domestic market, the thrust of the company was on exports(Rs 81.4 crore in 1996-97) accounting for 14.5 percent of sales (excluding export through an agent but including trading exports).

Though Russia and the CIS countries remained the major market, the thrust was on South-East Asian markets. The company had executed an order of Rs 22 crore in Indonesia and had also established a new office in Malaysia. While Russia and CIS countries were never very reliable markets, the slowdown in South-East Asia will now see more deferments and cancellation of orders.

For Thermax, that means neither will offtake at home improve, nor do the prospects for exports seem bright. The second half of the current fiscal, and in all probability the first half of next year will be affected.

It is, however, necessary to say that the slowdown is affecting the entire capital goods industry and the company is doing extremely well on matters over which it has control. Working capital management is a case in point.

From the point of view of sales and net profit, 1995-96 was an excellent year, but the receivables and inventory (up by Rs 53.13 crore and Rs 38.5 crore, respectively) ensured that cash generated was not sufficient to meet working capital requirements despite stretching payables.

Despite the collection period in 1996-97 worsening to 96 days from 76 days in 1995-96, cash generation was positive due to very tight inventory management, a direct result of higher outsourcing.

The company could have done little on receivables as the clients were stretching payment. Another improvement was on advances received from customers.

The order book was virtually flat at the beginning of 1997-98 and yet despite the difficult conditions, the advance from customers after remaining flat at Rs 31 crore in 1995-96 and 1994-95, improved to Rs 62 crore as a result of the company insisting on higher advance. The interest burden in the first half of the current year was also substantially lower mainly because the company had retired debt in 1996-97. In the first half, the company has not provided for tax and due to capex being on hold, the company will have very limited tax shelter. The obvious conclusion is that profit in the second half will be lower.

Basically, Thermax, is a sound company which is having a hard time mainly due to the economic slowdown. But when the economy turns around, it will be a much better performer.

Krebs Biochem

At the outset results of Krebs Biochem does look impressive with a 30.09 per cent growth in turnover and 53.92 per cent growth in net profit. Turnover has increased from Rs 10.27 crore in the first half of 1996-97 to Rs 13.36 crore in the first half of the current fiscal, while net profit moved up from Rs 3.68 crore to Rs 5.67 crore. Higher growth in net profit has been mainly on account of lower interest charge, lower effective tax rate and higher other income component. Contribution of other income (export incentives of Rs 1.71 crore) to PBT has increased from 15 per cent to 28.93 per cent.

On the operating front the company has taken a beating, with its margins decreasing drastically from 48.8 per cent to 36.8 per cent. This has been mainly because of higher cost of molasses, which is one of its main raw material. Also, for the first time after the commissioning of its plant the company's turnover has declined on a comparison of two consecutive halves.

Sales for the current half are lower by 13 per cent as compared to the second half of the previous year.

Though the demand for Krebs products -- pseudophedrine and ephedrine -- is high, specially in the export market, the first half performance can be considered as a minor setback , especially in the light of the fact that it has a strong order book. The company has taken measures to increase its product quality by changing one of its main solvents, which will further add to the acceptance of the product in the international market. However, the company's margins will continue to remain affected for the current year.EMCEE( with contributions from Urmik Chhaya and Shishir Asthana)

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.