Viewed against the background of slow economic growth, Tisco's performance looks creditable. The company has managed to show a sales growth rate of 3.77 per cent in volume terms from 1,194,329 tonnes to 1,239,405 tonnes while its production grew by 5.62 per cent from 1,415,103 tonnes to 1,339,751 tonnes.

However, a higher production rate than sales will result in inventory being piled up, which has been the problem centre for the steel sector.Going by the year end figures for March 1997, both the steel majors Tisco and SAIL were carrying huge finished goods inventories. In fact, while SAIL cut down production in the second half, Tisco had maintained its production rate, and still continues to do so, as a result of which it was laden with a finished good inventory amounting to more than 45 days of production in the region of nearly one hundred and seventy thousand tonnes (last year 20 days). Though Tisco is the more cash rich company of the two, it will have to take drastic steps to bring down its ever increasing inventory levels. Among the options available with the company, in the light of lower off-take in the second half, are cutting down production, offering higher discounts or increasing exports. Considering the current rupee depreciation, exports seems to be the best alternative.Tisco's first half results would have been worse had it not been for a higher other income component and lower net interest. As a result of higher freight and power cost, coupled with low steel and ferro chrome prices Tisco's operating margin dropped from 20.61 per cent to 16.77 per cent. These are likely to go down further in the second half as input costs have been subsequently increased. Unless the company manages to export huge volumes, negative growth rate is likely to continue.Premier Instruments and Control (Pricol)An industry leader in dashboard instrumentation, Pricol's half yearly results reflect the slowdown in the automobile sector. But given the industrial background, the company's performance vis-a-vis the negative growth of its peers is commendable. Turnover at Rs 69.67 crore, was up 11.11 per cent compared to Rs 62.70 crore for the six months ended September 1996. Given that the cumulative production of cars and utility vehicles during April - September 1997 grew at a much slower pace of 5 per cent, compared to the 18 per cent growth achieved last year, Pricol's performance has been good.That Pricol is a supplier to Maruti Udyog (which currently is the only car manufacturer with any volumes that matter) has helped. The company has also benefited from the surge in demand in the motorcycle segment, since it is the main supplier for both Hero Honda and TVS Suzuki. Operating profit margins have improved from 19.57 per cent to 20.63 per cent. The net interest burden has dipped marginally (3.66 per cent) to Rs 2.53 crore.

However, increased depreciation charge and a higher tax outgo have been a drain on the earnings. Net profits have increased a mere 10.77 per cent from Rs 5.56 crore to Rs 6.15 crore.In line with this bottomline growth, earnings per share have improved marginally from Rs 10.08 to Rs 10.26, despite an equity dilution in the form of a preferential issue to Denso Corporation.

For the future, while there is the encouraging outlook of increased demand from the new car manufacturers setting up shop in India, there is also the threat of foreign car makers setting up their own component subsidiaries, which could well cannibalise into the market shares of the Indian players. BASFThe reopening of leather tanneries in Tamil Nadu coupled with higher margins from textile dyes and agrochemicals has bolstered the half yearly results of BASF. The turnover of the company has improved from Rs 138 crore in the first half of 1996-97 to Rs 153 crore in the first half of 1997-98, while operating profits have gone up from Rs 23 crore to Rs 26 crore.The demand for leather chemicals,which account for 35 per cent of the company's turnover has surged after the supreme court came out with a stay order to restart the leather tanneries. The operating margins on textiles dyes and agrochemicals,which account's for another 50 per cent of the company's turnover have improved by 10 per cent.The company has been hit by the drop in prices and a decrease in volume sales of expandable polystyrene business, which finds use in the packaging industry, mainly in the form of thermocol. The profitability of this division depend on the international price of styrene monomer which has continued to drop since 1995.A triple AAA rating from Crisil has helped the company to refinance some of the debt. Though the interest cost has come down from Rs 12 crore in the first half of 1996-97 to around Rs 7 crore in the first half of the current fiscal, the cost of capital has decreased marginally from 16 per cent to 14 per cent. The rise in depreciation charge this half is due to the new project commissioned in Mangalore.Future growth will continue to be from agrochemicals, chemicals and textiles dyes in the local market. The leather chemical business is still full of environmental risk. Also the plans of the company to produce Butadiene at a time when the plastic industry is facing squeezed margins would not add to the profits of the company in the short term. EMCEE (with contributions by Shishir Asthana, Percy Dubash and Manish Saxena)

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.