Given the fact that TVS Suzuki (TSL) had achieved sales of 61,700 units in July, the company's half-yearly turnover of Rs 609.42 crore does not hold any surprises. TVS Suzuki's 20.58 per cent growth in volume terms with 3.34 lakh units was far above the industry growth rate. Its market share in motorcycles has increased from 23 per cent to 25 per cent, at the expense of market leader Hero Honda. Performance in the moped segment has also been creditable, with sales improving from 1.47 lakh units to 1.65 lakh units.

But an increased wage bill on account of fresh recruitment for the company's new Mysore factory has squeezed margins. With wage costs increasing from 15.6 per cent of sales to 16.5 per cent of sales, operating margins slipped from 12.46 per cent to 11.46 per cent.Prudent financial management has allowed TVS Suzuki to curb interest costs at Rs 8.92 crore (Rs 9.51 crore last year). This despite the fact that the company had raised debentures at 15.50 per cent last year forfunding the scooter project and for expanding capacities at Hosur. For the future - with TVS Suzuki now aggressively entering the big-league scooter market, the company would have a full complement of two-wheelers. Probably the only question mark over the success of the new 150cc manual- geared scooter is the premium pricing niche.

The company could well be laden with higher fixed costs from the Mysore factory in the second half, and TVS Suzuki will also have to accommodate the lower growth rate in scooters vis-a-vis motorcycles. In scooters, the competition in the shape of Bajaj and LML are already far ahead in terms of capacities. A lot could depend on TVS Suzuki's ability to achieve economies of scale to counter the competitive threat. Underlining this apprehension, the company's share price has only marginally outperformed the Sensex in comparison to scrips like LML and Hero Honda.

Priyadarshini Cement

The formation of a cartel in the southern states in June and the resultant hike in cementprices has been clearly reflected in the second quarter performance of Priyadarshini Cement. Though sales during the quarter have been lower by 6 per cent compared with the first quarter, operating profit margins are higher by 5 percentage points. Even if we compare the second- quarter results with those of the corresponding period of the previous year, operating-profit margins are higher by 1.65 percentage points. The bad news, however, is that the cartel has already weakened, and this is reflected in price of cement in the region.

Yet another reason for misgivings is the pending rights issue. The proposed expansion of capacity from 0.6 million tonne to 2 million tonnes at a cost of Rs 379 crore is awaiting clearance by financial institutions and the financing will involve equity dilution. There can be no two opinions about the need for a capacity expansion, considering that capacity utilisation was 135 per cent in 1997-98. But expansion will mean an increase in balance- sheet size, which was Rs 80.16crore as on March 31, 1998. The expansion will not yield any results for at least the next two years, but the balance-sheet size will grow four-and a-half times.

Priyadarshini's return on capital employed, calculated on a PAT plus post-tax interest by average total capital employed basis was a high 21 per cent last fiscal, but that will fall drastically to a single digit figure as a result of the balance- sheet expansion. In that case, even at the current price-earnings' multiple of 3, the scrip may not merit investment. The only hope in the medium-term for shareholders lies in the much-rumoured proposed take-over of the company.

Vikas WSP

The news regarding the destruction of the guar crop owing to unseasonal rains in Pakistan had sent the Vikas WSP scrip soaring to new highs in April. As India and Pakistan are the major producers of guar seeds, the destruction of the Pakistani crop meant a firming of raw-material prices for guar water soluble polymer players like Vikas WSP. However, as theprice rise in India was lower and as Vikas WSP enjoys a near monopoly status in the export of the product in the country, the market believed that it would be better placed than its competitors in other countries. This was expected to result in higher orders and therefore better sales for Vikas WSP.

This is precisely what the company's financial results for the six months ending September 1998 show. The company has registered a turnover of Rs 75.78 crore -- a growth of 54.43 per cent over the corresponding period in 1997-98. However, the growth in its expenditure has been 4.78 percentage points higher at Rs 48.99 crore. Most of this is owing to increased raw- material prices. As a result, the growth in operating profits which stood at Rs 26.79 crore has been 46.39 per cent. The fact that its operating margins have dipped merely by 1.94 percentage points to 35.35 per cent indicates that the company was only marginally affected by the increase in raw- material prices (it is common practice to book orders inadvance depending on prevailing raw-material prices).Vikas WSP already holds export orders of about Rs 32.06 crore, and according to the management, a few other big orders may be confirmed. The market appears to have discounted this as the scrip which had fallen to a low of Rs 76 on the BSE in September has begun to soar once again. It touched a high of Rs 150 on October 14 and currently trades at around Rs 120 per share.

Emcee (with contributions from Percy Dubash, Urmik Chhaya and Sarad Saraf)