Shri Shakti LPG, one such bottler, has emerged as the single-largest entity importing and marketing the gas in the private sector, controlling almost 30 per cent of those volumes through its three lakh connections. But it concentrates its operations in the south and has only just decided to venture into the western markets. Shri Shakti's operations are high cost owing to its operating structure. Yet the company has managed to turn a profit, both in the second half of the last financial year as well as in the first quarter of the current year.

The benefit to the company in the last one yearcame through lower international LPG prices. The prices have fallen from $180 per tonne to $125 per tonne (with the bulk of the fall coming in the last six months). Though the raw-material cost forms the largest cost component to the bottlers, a major add on costs like transport tends to skew margins.

In Shri Shakti's case, in the last year, and especially in the last quarter, higher income from funds deployed has played a part in pushing up profits. But this earning has to be considered as part of the operating income, as it is a revenue earned on interest-free deposits placed with the company by the consumers, and is a direct result of the firms marketing strategy. The contribution of additional income from this source should increase as the company has introduced new marketing schemes besides tying up with Consumerfed, a southern gas-distribution outfit, which provides Shri Shakti access to 700 retail outlets.

The huge gains that have accrued to the bottlers due to lower raw-material prices have notreally translated into sustainable benefits for the company. For one, the company has a huge equity (Rs 50.56 crore, which is the largest amongst the other private sector LPG marketers), which makes any return on equity look miniscule.

LPG prices are also not expected to remain depressed for the rest of the year. Any increase in the international prices of LPG will affect margins of the bottlers and marketers, taking away the only benefit these companies have. For the first quarter, the benefit of lower international prices was obvious, as the operating margins rose to 34.5 per cent from 22 per cent last year. But volume growth and consistent profitability will be a problem, since these private marketers cannot compete with their public-sector unit (PSU) counterparts in the long run. PSUs sell at subsidised rates, but the private sector sells at the full rate of Rs 220 per cylinder. This is true for all these private-sector marketers, and this reflects in their respective stock prices.

Great EasternShipping

The disappointment over the first-quarter performance from Great Eastern Shipping reflects in the stock, which is down 20 per cent. But an analysis of the performance throws up a few facts that contributed heavily to the 34 per cent drop in profits, besides the steep rise in operating costs. One, the result of the acquisition programme the company had undertaken last year was increased depreciation. Second, the other income was lower, as there was no income on sale of ships, and lastly, the returns from the real-estate business continued to be a drag on profits.

For the financial year 1997-98, the last point was clearly highlighted. The capital employed in three main divisions was Rs 1,636 crore, generating a cumulative operating profit of Rs 393.1 crore at a weighted average return of 24.02 per cent. But the individual returns tell a different story. While the main shipping division reported an operating return (returns before fixed expenses) of 26.8 per cent, the offshore supply-vessels(OSVs) division reported an operating return of 23.25 per cent, and the real-estate unit posted a return of just 10.8 per cent, on Rs 230 crore of capital employed. Ignoring the returns from real estate, the weighted average return for the other two divisions is 26.2 per cent, reflecting the opportunity cost of funds employed outside its core businesses. But even otherwise, the company is overcapitalised and sports a low overall return on capital of 11.29 per cent.