The company's business was over capitalised following the rights and despite a good performance thereafter the return on equity rarely exceeded 16 per cent. EPL is cash rich and will be able to execute a buyback with very little problem, a move which will improve the RoE.

Operationally as well EPL will be doing well in the current year, since it will be the firstfull year of operations of its plant in China. This plant will have its raw materials (web laminates) supplied from the Indian operations, which will yield export revenues for Essel Packaging. The strategy it has been following in the Indian market is to set up manufacturing units in close proximity to those of Hindustan Lever, Procter and Gamble and Colgate. EPL has set up a unit in Nepal under the same strategy.

The latest annual report displayed some financial innovativeness from the company. EPL had assigned its future liabilities under deferred sales tax to another company. The value of the deferred sales tax is Rs 24.37 crore (for liabilities until 1998) payable in instalments from 31-3-2003 until 31-3-2010. Instead EPL has opted for a one time payment of Rs 5 crore to the assignee, instead of the future annual payments (which will be uneven as they are related to the annual sales tax liability), effectively it has discounted its future liabilities and paid off the net present value of the same. Theeffective rate of discount works out to 15 per cent. The company may opt for a similar structure to deal with its future sales tax liability arising between 1998 and 2003.

Georg Fischer Disa

The slowdown in user industries took Georg Fischer Disa by surprise during the latter half of 1997-98, bringing down its growth rate for the year. The growth rate in the past has been just 20 per cent against market expectations of much more. The slowdown in the auto sector has been especially harsh on GFD, which is a leading manufacturer of foundry equipment. In addition to foundry equipment the company imports and services construction equipment from its parent organisation overseas which represented another source of disappointing growth.

It was widely anticipated that GFD would resort to export of foundry equipment in the event of a slowdown in the Indian economy, though exports do not seem to have contributed in any significant manner to the earnings for the year. The gain in revenues and the improvementin operating margins by one and a half per cent to 20.09 per cent could not totally mitigate the impact of the halving of its other income, which in earlier years had contributed well to profits.

Like some other MNC subsidiary companies GFD believes in writing off assets within a short span of time. This made the net profit for the year an unrealistic and an inaccurate indicator of its financial performance in the past. Last year the company provided for Rs 1.38 crore of excess depreciation against a total depreciation of Rs 2.4 crore for the year. This year however seems to be an exception where the depreciation has actually been reduced. This reduction in depreciation and a reduction in the effective tax rate were the factors that enabled GFD to post a growth in net profits marginally by 8 per cent. Despite the growth and the improvement in operating margins, if cash earnings per share have been a criteria of evaluating this company in the past then its performance has not improved by much. Against a cashEPS of Rs 26 in the previous year, the past year has produced Rs 27 per share.

The stock has been falling independently of the market and currently trades at Rs 135 (from a high of Rs 320) yielding a P/E multiple of just 9 times (against 17-18 times earlier).