With the Securities & Exchange Board of India (Sebi) announcing rules for buyback of shares in accordance with the ordinance, the market has realised the potential complexities involved in the process. The process is designed to be a very transparent one, and is by no means slack, which unfortunately is what the market had anticipated, the thinking being that with slightly slack regulations, even some reticent companies would have been tempted to attempt a buyback. But with promoter self-interest being very well taken care of through the full disclosure norms, and the fact that the buyback process will have to vetted by a merchant banker, who, in turn, is answerable to Sebi, means that few companies might actually go ahead and buy back shares. However, some companies such as the public-sector units (PSUs), and others like Reliance, Great Eastern Shipping, and Essel Packaging are widely expected to exercise this option soon. To many other companies that have passed enabling resolutions allowing them to buyback shares, now the need for a specific resolution means going back to the shareholders for permission, which means holding an extra-ordinary general meeting. But few companies would want to hold the meeting right now. Most companies would prefer to wait for the next annual general meeting before approaching shareholders with a special resolution again.The bottomline is that very few stocks were gainers in the market, and it almost seemed that the market was being set up for an eventual rally, given the unnecessary force of selling in numerous stocks. Considering that it was only the first of trading at the National Stock Exchange, and chances of the selling to a large extent being the handiwork of trigger-happy speculators, a rally should not be ruled out.
Western Hatcheries: Western Hatcheries has reported a 18 per cent growth in revenues for the first half of the current year from Rs 83 crore to Rs 97 crore, but the bulk of this growth has come in the second quarter. Revenues in the first quartershowed a growth of just 5 per cent on a year-on-year basis, but in the second quarter, the growth in revenues accelerated to nearly 25 per cent year-on-year, and on a quarter-to-quarter basis, this rate of growth was 15 per cent.
Western Hatcheries has been able to grow fast owing to its focus on the very large and growing urban market and the hospitality industry, largely in the western region, and owing to its ability to develop new products as well as new applications. It has focused mainly on the Mumbai and Delhi markets, and sales have been boosted by the new multinational eateries which have opened recently in urban areas.
But the faster growth has compromised growth in profits in the second quarter. Profit before tax is lower than that in the first. Margins came under pressure as they usually do in the second quarter. Apart from the lean season which requires greater marketing efforts, the prices of broilers, its main product, are usually depressed in the second quarter. Operating margins havedipped from 15 per cent in the first quarter to around 12 per cent in the second quarter. Besides, the tax provision was much higher in the second quarter.
Western Hatcheries' plans for getting into newer and untried segments such as nutritional products will take some time before yielding profits. The capital investments have been made, and now the company will have to invest in marketing. Besides, the prices of poultry feed, which is a major raw material, are a crucial determinant of profitability. The prices fell by 7 per cent last year, thus contributing to a rise in margins then.
The stock has been reflecting the improving performance of the company. Since the announcement of the results for the year 1997-98, the stock has perked up, and from there, it has gained a total of 22 per cent in around four months time. Cumulatively, the stock has slowly but surely risen by 61 per cent since February this year. The company has been a stable performer, but the stock has begun to find takers only recently.Even at the current price of Rs 32, the stock provides a decent equity yield of around 11 per cent.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
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