Slowdown in the automobile sector had an undesired impact on the carbon- black industry, where the situation worsened further owing to a huge depreciation of the south-east Asian currencies. While South Korea is the largest producer of carbon black in Asia, Indonesia also features among the top carbon black-producing countries. A comparatively low depreciation of the rupee against the dollar made imports cheaper from these countries.

But for the stock market, the situation seems to be improving. Otherwise, what else can explain the fact that Cabot India's stock has shown a 50 per cent appreciation during the past two months, and is now available at its six-month high of Rs 95. The tradingvolumes on the counter have also gone above the average number of 800 shares per day. What seems to have triggered the rally is a safeguard duty on imports. The government had imposed a 10 per cent safeguard duty in October 1998, which is valid for five months. Had demand shown some improvement, the safeguard duty would have helped the domestic producer. In such a scenario, Cabot's results for the fourth quarter (July-September) did not come as a big surprise. The company's ability to maintain sales during tough times is certainly noteworthy.

For Cabot, around 70 per cent revenue comes from the tyre sector, where also the bus- and truck-tyre segment account for a large portion. The rest of the revenue comes from other industries such as plastics, rubber beltings, paints, and dry cells.

During the fourth quarter, the company has posted sales of 29.47 crore, marginally higher than the third quarter (April-June) figure of Rs 28.64 crore. At the same time, margins on the operational level stood at 16.25 percent. During the first half of the year, the operating-profit margin stood at 16.11 per cent. Stringent cost control have helped the company.

For the full year ending September 1998, the company posted a net profit of Rs 10.41 on sales of Rs 116.15 crore, although the other income's contribution as the percentage of pre-tax profit has been high at 14.12 per cent. At the current market price, the stock gets a price discounting of 8, comparatively high for a commodity stock.

Shareholders of the largest player in the sector, Phillips Carbon, however, are not as fortunate. From the stock market's point of view, Phillips Carbon's performance has been far from impressive. The stock is available at Rs 15-its all-time low. The safeguard duty imposed during October this year failed to have any result on the stock's performance.

The reasons for this are not far to seek. The stock does not enjoy a good market fancy. Being the leader in the sector (the company has the largest capacity of two lakh tonnes in thecountry, and a two-thirds market share), the impact of slowdown in demand and cheaper imports had a major impact on the company's performance. Besides dismal performance and a bleak outlook for the sector, what seems to have affected the stock's performance is the fact that the company's subsidiaries have posted huge losses in the past, and recovery is unlikely on this front. A delay in announcement of last year's results also had a negative impact on market perception. For the announcement of the September 1997 results, the company had asked for a two-month extension from the department of company affairs (DCA). Such factors, though insignificant, have had a negative impact on the stock price.

The outlook continues to be bearish, at least for Phillips Carbon. Demand will continue to be under pressure, as the automobile sector is yet to show any signs of recovery. Similarly, imports will continue to haunt the domestic market, as prices in Indonesia are still very low, and in the case of non-extension ofsafeguard duty, domestic producers will be forced to reduce their prices. Cabot India's debottlenecking has already resulted in an increase in capacity from 36,000 tonnes to 52,000 tonnes. Since the problem of overcapacity will remain, as demand has not been showing any recovery, the market will have no option but to resort to profit booking.