The Index
Percy Dubash, A G Krishnan and Manish Saxena
MTNLIt appears that MTNL is only just beginning to comprehend the immense potential of value-added services like Internet, e-mail, intelligent networks, cellular services etc, a fact clearly reflected in the company's gameplan for 1998. While there is no doubt about the latent money spinning potential of these services, MTNL would do well to safeguard against the hurdles that they might encounter. The first of which could be the bureaucratic interferences of the DoT. Need one be reminded about its greedy gaze on VSNL for taking over the latter's Internet service. Next there is the threat of competition from the private ISPs who are waiting in the wings for their entry cue. It would be quite interesting to see how MTNL, which has thus far been a monopoly player, deals with competition. Next in MTNL's bag of tricks is the `Wireless in Local Loop' (WILL) which, if successful, will be a partial threat to cellular operators. However, it would be prudent on MTNL's part to realise the imminent
downsides such as limitation of range. Currently the WILL services are centred around two to five kilometre radius cellsites and the technology also has a capacity limitation of a mere 1,000 subscribers, a direct consequence of which is the high Rs 25,000 deposit being charged. Thus in a city like Mumbai, this service would hardly get any takers given the fact that Mumbai's suburbs would be excluded from coverage. Last in its bag of goodies is the intelligent network service, which will include toll free services, virtual card calling etc. While all this appears very interesting on paper the fact remains that MTNL currently does not have the appropriate security systems in place to ensure smooth usage of the facility and accurate billing cycles. DoT would also have to be consulted on the tariffs payable by the receiver of a toll free call as no such precedent currently exists in India. Also given MTNL's track-record, analysts are extremely sceptical about the company's mid-1998 deadline for the
implementation of these value-added services. In fact, it was MTNL's inability to achieve its target capacity additions in 1996-97 which was the main reason for the relative slowdown in its income. Lupin Chemicals Lupin Chemicals appears to be on a steady climb with sales increasing 13 per cent to Rs 34 crore in the first four months of the financial year 1997-98. The correction in the import policy of Rifamycin-S coupled with its increased production from the basic to the fermentation stage has reduced Lupin's imports considerably. The company has also been able to cut costs through process control due to the technological upgradation at its Tarapur plant. The firming of Rifampicin prices should also help. Incidentally for the financial year ended June 1997, Lupin raked up a turnover of Rs 92.08 crore an increase of 34 per cent over the last year. Interestingly the production of Rifampicin was up 33 per cent to 156 MT. Operating margins also improved marginally from 23.5 per cent to 25.3 per
cent. But despite increased interest and depreciation charges, net profits buoyed by a zero tax provision jumped 81 per cent to Rs 6.86 crore. The company is also exploring the possibility for expanding the product portfolio, which together with the fact that Lupin is the world's second largest Rifampicin manufacturer augurs well for the future. More importantly Lupin has only recently received the prestigious US FDA approval for its Tarapur factory, which should facilitate improved sales in the lucrative US market. Thus exports definitely hold the key to Lupin's future profitabilities. IPCL's dilemma The revised estimates for supply of natural gas by GAIL to IPCL, could pressurise IPCL's earnings. The company's bottomline has been hit in the recent past due to the drop in volume sales of polymers because of increased competition and drop in prices of LDPE, HDPE, and PVC by 10 per cent. Polymer sales account for almost 75 per cent of IPCL's sales. To overcome the price drop, associated with
the polymer business the company has plans to set up polymer capacities in Gandhar (phase-2) which should be completed by 1998-99. Interestingly all these new polymer capacities would be best utilised if natural gas (C2-C3 are in the ratio of 65:35) is used as a feedstock. Apart from cost of natural gas being only Rs 4,200 it also gives a yield of 55-60 per cent ethylene and 15 per cent propylene, which is as per plant design. If however, IPCL's management decides to use propane or LPG as a feedstock, given the supply constraints of natural gas, it faces high cost disadvantage on two accounts. Firstly, the cost of propane is Rs 19,000 and second its yield is only 25 per cent ethylene and about 20 per cent propylene. Thus to improve these yields and run the plant at full capacity, IPCL would have to use more amount of LPG which is even more costlier than propane, which would leave its plans in total disarray. Thus IPCL's could well have to opt for - running the plants at 50 per cent capacities which would
reduce the operating margins by 15 per cent and leave a high amount of depreciation uncovered. This however may be good news for competitors like Reliance and GAIL which are implementing large downstream capacities in polymers. As both of them have no problems in sourcing cheap feedstock and hence can easily ward off competition from IPCL and foreign players on the price basis.
Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.
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