Secondly, owing to the strengthening of the Deutsch Mark against the rupee has meant the possibility of an upward revision of prices in a range of its vitamin products. According to market sources the company is likely to raise prices to accomodate increase in raw material costs sometime in January 1999, which will push up profits to that extent (since margins will be maintained). Besides, the company is the largest exporter of vitamin E from the country and to that extent the depreciation in the rupee will help earnings.

Thirdly; growth in the current year will also come through launches of some OTC products. For example, the parent company, Merck AG, has bought out the Seven Seas brand of OTC products worldwide. Now, the marketing agreement that the previous owner had with another Indian company will come to an end by the end of the current financial year (E Merck has a December year ending). Marketing the Seven Seas brand will push up annual revenues by Rs 30 crore, which should be felt in the year 2000.

Fourthly, the company has been attempting to reduce its balance sheet size through a reduction in debt. This will make a significant change in the current year to its net earnings. The idea is to reduce debt levels from Rs 45 crore to Rs 10 crore. This will almost make it a zero debt company by the end of the present financial year ending in December 1999. This will be possible since the company has completed most of its expansions and has a much lower capex chalked out for the current year.

Given this backdrop the present and expected market discounting looks very attractive. The expected earnings per share for year ended December 1998 is Rs 15, yielding a forward p/e multiple of 27 times. But given the fact that the EPS is expected to increase by 40 per cent to Rs 21 for the current financial year the forward multiple is less than 20 times.

German Remedies; keeping up the pace

The German Remedies stock is another one that has been attracting attention. Rumours are that the stock is receiving a better discounting on the eve of its third quarter performance. The company is due to announce its third quarter results on January 19. For the first two quarters the company has performed below the markets expectations, however cumulatively it has far exceeded its earnings in the previous financial year.

For the entire year last year the company earned Rs 21 crore in net profit. For the first two quarters the company has reported Rs 13 crore in net profit. For the next two quarters the company is expected to report another Rs 18 crore, eclipsing its previous years performance. The manner of rise in the stock and the outstanding positions here clearly indicate the presence of speculators who are in only for the short term, making the shorter term run in the stock a little shaky, and there could be easily be a sell off in case of any negative development.

Even so, the price earning multiple based on its anticipated earnings per share of Rs 38 is just 18 times. But on the expected earnings per share of Rs 50 for the year ended March 2000 the stock trades at a prospective p/e multiple of just 14 times, making it very attractive, considering that other top rung pharma MNCs currently trade with higher p/e's on aniticpated earnings for 1999 and 2000.