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Dumping gives commodity stocks the jitters
Aaron Chaze
The threat of dumping from neighbouring countries, which is looming large and seems more of a reality today than ever before, is beginning to show on a number of companies dealing in textiles and other commodities. And this, in turn, has had an adverse impact on the stock prices of these companies. The reasons for the jitters felt in the stock market range from the threat of dumping in industries like synthetic fibres and steel to uncompetitive currency values that can affect commodity exports like raw cotton, cotton yarn and garments and industries like non-ferrous metals, such as aluminium and zinc, which will be affected by respective global prices.The metals industry will be indirectly affected due to the fact that offtake from the neighbouring countries is expected to falter which could drive down the price of these non-ferrous metals further. As such, metals like copper and zinc have already dropped 30 per cent to 35 per cent from their 1997 highs. The fall in the case of aluminium, however, has beena lot less. A range of stocks has already started reacting. Hindustan Aluminium's scrip has already hit a new low as the current prices will only make things worse for them, and the current year is likely to be a repeat of the previous year where the stock suffered on account of poor metal prices. Hindustan Zinc (HZL) seems to be facing a similar fate. Though the domestic price of zinc has not changed much, the international prices are down by 35 per cent from last year's high. The HZL stock dropped by 70 per cent from its high of Rs 33 seen in 1997. The same truth seems to be awaiting companies that have put in a good performance in the synthetic textiles industry. For example, Krishna Filament that has almost doubled earnings, thanks to strong demand from the export sector. Cotton stocks like Maral Overseas, once again very strong performers so far, are expected to suffer from the relatively uncompetitive value of the rupee when compared with the currency of the neighbouring countries. Reckitt &
Colman may post good results With the annual results of companies that have a December ending just round the corner, the stocks of these companies are beginning to reflect market expectations which is accompanied by a rise in volumes. Reckitt & Colman is one company whose shares have consistently risen in recent months. From Rs 339 in the last week of November, the stock touched a 52-week high of Rs 416 a few days ago. Thereafter, the stock has been steadily retreating, but the expectations are still built into the price. A company rejuvenating itself is one development the stock markets prefer the most for it could mean a period of rapid growth, both for revenues as well as stock prices. The company is widely expected to announce an impressive performance in the second half (July-December) of 1997, following a good performance in the first half. For the six-month period ended June 1997, the company reported a 30 per cent jump in sales and a 61 per cent increase in profit at Rs 17.88 crore. Even
after excluding the benefit of other income, which rose from Rs 1.43 crore to Rs 4.08 crore, the growth in net income was substantial at 44 per cent. Bulk of the growth for Reckitt & Colman has come from its new products, Mortein and Lizol, a cleaning liquid. Besides, the company has focused on rejuvenating its strong brand portfolio by introducing brand extensions, particularly for its cash cow and most popular brand, Dettol. The reduction in excise duties on cosmetics and toiletries from 40 per cent to 30 per cent has also played a major role, besides a successful cost-cutting exercise in pushing up operating margins. Till 1995, sluggish marketing along with a lethargic reaction to new business opportunities and an inability to accurately decipher the potential of domestic demand affected growth. The stock market's perception came across very clearly in the poor discounting that was given to it. As far as the second half of 1997-98 goes, the commissioning of additional capacities for mosquito coils,
PCMX and Trilcoson and tablets should help push up growth rates. But before all this, it must be kept in mind that marketing companies like Reckitt, though seasoned, are usually challenged by competitors, especially if the products they launch or revamp succeed. Therefore, the growth rates usually are very difficult to maintain, and hence, justifying a market discounting which as high as 40 times of its historic earnings is difficult and very risky.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
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