Buying interest has surfaced in the CESC counter. The stock has appreciated by over 25 per cent in just two trading sessions. Punters have welcomed the process of reorganisation initiated by the RPG group. More importantly, it is the report of CESC clocking a turnaround in the second-half of 1998-99 that has done the trick. The group as a whole is likely to clock a net profit of Rs 160 crore in the second-half against a Rs 130 crore net loss in the first-half (Rs 127 crore accounted for by CESC alone).

The reorganisation includes sell-off of a few group firms which has already raked in Rs 700 crore besides saving Rs 130 crore annual losses and another Rs 120 crore as interest cost. So far as CESC is concerned, October was a breakeven, while November has raised a hope of marginal profits. Expenditure has been cut, while transmission losses are down.

The 500 mw Balagarh project has received all clearances and will have a financial closure in February 1999. In theensuing month, the 702 mw Dholpur project will go the same way. The boiler for the second 250 mw Budge Budge plant gets fired in December. On the generation front, it looks like the worst is over for CESC.

Cheering a turnaround

Living up to market expectations, Finolex Industries has turned the corner for the first-quarter ended October 31, 1998. Thanks to the cost cutting measures and a spurt in other income, Finolex Industries has clocked a net profit of Rs 5.1 crore in the first-quarter against a net loss of Rs 91 lakh for the corresponding period in fiscal 1997. The company has managed the turnaround despite a 6.76 per cent fall in sales.

The scrip has been inching upwards in anticipation of a turnaround since October. The share on the Bombay Stock Exchange rose from Rs 4.25 on October 12 to Rs 7.05 on November 27. In a single trading session, the share shot up by 20 per cent from Rs 7.05 to Rs 8.65. In the following session (December 1), there was a technical correction and the stock fellmarginally to Rs 8.5.

In the first-quarter, sales has fallen by 6.66 per cent to Rs 147.7 crore. Expenditure is down 13 per cent to Rs 120.1 crore. Other income, however, has registered a robust growth of 52 per cent to Rs 1.75 crore. Interest cost has risen marginally by 8.16 per cent to Rs 14.1 crore.

For the fiscal 1997, the company had incured a net loss of Rs 11 crore. On a large equity base of Rs 148 crore, the company has reserves of Rs 258 crore. The annualised EPS works out to Rs 1.37 and the share is currently traded at a low price-earning multiple of 6.2.

Wockhardt up on higher net

The annoucement of a 30 per cent jump in sales for the five-month period and development of two new anti-infective compounds by Wockardt has helped improve sentiment in the Wockhardt stock. On Wednesday, the scrip opened higher by 3.87 per cent on Mumbai Stock Exchange as against Tuesday's closing of Rs 243.

The company has reported a 30 per cent growth in sales to Rs 220 for the five-month period enededNovember 30, 1998. It has also developed two new anti-infective compounds and is expected to seek global tieups for further clinical studies as part of its new drug discovery programme.

Wockhardt has also filed international patents for three technologies involving new drug delivery systems, besides moving towards filing applications with the US FDA for six formulations and nine bulk drugs in the pipeline for 1999. Wockhardt's progress on the drug discovery front comes alongside a string of new marketing alliances with Japanese firms, Daiichi Pharmaceuticals and Hisamitsu Pharmaceutical Co. The Wockhardt brand has been estimated at Rs 331.9 crore. Earlier in the year, the company had acquired UK-based Wallis Laboratories. The company would be marketing its products in Europe through the acquired company. Even the chairman's statement that in the next three years the company's priority would be to improve return on investment and enhance shareholder value has generated some interest in the stock.

On aslippery ground

With analysts expecting a slower growth in earnings beyond fiscal 1999, both Bharat Petroleum and Hindustan Petroleum have come under selling pressure. BPCL lost Rs 8.7 to close at Rs 235, while HPCL closed at Rs 230.9, down 5 per cent.

For the current fiscal both companies are expected to report a 30 per cent growth in earnings. Growth will mainly come from high margins on decontrolled products and higher tariff protection. Currently, the products enjoy tariff protection of 4 per cent versus recommended levels of zero per cent by the petroleum ministry. However, these earnings will not be sustainable. The margins are expected to decline on decontrolled products. The deteriorating macro-environment would slow down the earnings of these two refinery companies. Analysts expect poor regional refining conditions to continue over the next 12-15 months. Thus, it would mean that refining margins would continue to be under pressure in India unless there is higher tariff protection.

Themargins will further come under pressure as the markets will become more transparent and competitive (both domestic and from imports) in India. With fresh refining capcities coming up, Indian refined products will face an oversupply position by fiscal 2001 and this could potentially limit the refining profitability and result in lower financial returns. According to analysts, financial returns of BPCL and HPCL will decline after fiscal 1999, reflecting not only stagnating profits but also higher investments in joint ventures and product upgrade projects, which contribute little to the bottom-line.