ON a half-to-half basis, HDFC's gross margins have declined by 1.95 percentage points though income from operations has grown by 22.5 per cent. This clearly indicates that spreads have worsened.

But compared to the first quarter, the GPM in the second quarter is higher by 1.2 percentage points and income from operations is up by 12 per cent. On a second quarter-to-quarter basis, the GPM has declined by 3 percentage points.

The trend is clear; the profitability in 1998-99 will at best be at par with 1997-98. However, the income from operations on a second quarter to quarter basis, is up by 26 per cent, and this has driven the growth in bottomline, which is up by 13 per cent.

With the sops announced in the budget (the interest deduction on housing finance loan u/s 24(1)(vi) has been doubled to Rs 30,000 from Rs 15,000) and the continued drop in property prices, the disbursements will continue to grow at a very healthy rate, and as a result, the bottomline for 1998-99 should show a growth of20 per cent, compared with the previous year.

Unless the third-quarter results are dramatically higher than the expectations, the scrip will hardly appreciate. On the other hand, the decline will also be very limited. At Rs 2,340, there is hardly any money to be made either through buying or selling. The stock will continue to trade on low volumes.

NIIT

The fact that NIIT is slated to find a place in the BSE-30 index proves that the stock has really caught the fancy of the stock markets. Moreover, it has heralded this by announcing a bonus of 1:2. The company's performance for the year ended September 1998 has also been outstanding. The question that arises is, what exactly has fuelled the amazing 51 per cent growth in its total income to Rs 648 crore?

The reasons are clearly evident. The company has started marketing its products under its own brand in the global markets. Currently, it shares a market share of 80 per cent (40 per cent each) with Aptech in the computer education business.

Inthe past, it was focusing on three business areas -- software solutions, education & training and learning software. Of late, it has begun to focus on the Internet and Intranet-based applications. These being high-growth areas, they have given a substantial boost to the company's revenue generation. The high-margin multi-media business has grown by 77 per cent to Rs 119.7 crore.

To focus on the new areas, NIIT has launched its Netcentric Solutions Business (NSB) unit. It is imperative to point out that the company has leveraged its professional expertise to produce customised net-based software at this unit.

The fact that Asean countries, irrespective of the current economic slowdown, have still offered a significant business outlet for the customised products originating from this division is a positive sign.

Business from this region should further augment the current order book position for software projects. Moreover, selling these software solutions has not been a problem as it already has a wideclient base globally. Its reach has translated into revenues from International operations rising by a whopping 74 per cent to Rs 312 crore. It would be safe to assume that net-based solutions would continue constitute a significant portion of NIIT's revenues in the future.

In the domestic computer-education business, the company has expanded its market base through the launch of innovative programs like BOOT IT for the masses, LEDA for schools, CATERED for the handicapped, and DIGNITY for senior citizens. As a recognition of its capabilities, Microsoft has appointed NIIT as its non-US courseware-development vendor.

The operating margins for the period have increased marginally to 33 per cent from 32 per cent. Both software operations and educational training have contributed around 40 per cent to the revenues. NIIT is fast beginning to be seen as a well-integrated software company, rather than a company involved merely in computer education.

Corporate India

Difficult times seem to have forcedcorporate India out of its slumber. According to the industry figures compiled by CMIE, manufacturing companies in general seem to have become more efficient in 1997-98.

They managed their inventory better during the year. The holding period for both raw materials and finished goods declined. While the average raw-material stock held by these companies came down from 71 days to 68 days, the average finished goods stock declined from 39 days to 33 days.

Surprising as it may seem, the debt-equity ratio of these companies improved from 1.37 to 1.21, and this improvement was largely led by the public sector. Interest-coverage ratios also improved during the period, but this appears to have resulted from a substantial decline in the average cost of borrowings.

Further, the manufacturing sector reduced its borrowings drastically. Borrowings as a percentage of total sources of funds came down from 42 per cent to 29.2 per cent. Though funds from the capital market as a percentage of total sources increased from17.8 per cent to 20.3 per cent, the quantum of fresh funds and premiums raised were much lower. To fund their activities, manufacturing companies relied mainly on internal sources and retained a higher portion of their profits.

But firms raised more funds through privately-placed debt instruments and debentures, and bonds formed nearly 12 per cent of the resources raised by them. The ratio is the decade's highest. But, these funds were productively utilised with nearly two-thirds of the resources being used to create new assets.

(With contributions from Urmik Chhaya, AG Krishnan & Sarad Saraf)