Further, the company of late has tended to grow its volumes at a faster growth than its revenues. But it is paying for this growth in volumes by cutting down on its realisations. The only compensating factor is that most of its growth is coming from the high value, high margin split airconditioner segment. Hence the growth in profits. So the gains that Carrier Aircon has enjoyed in terms of its market share is coming at the cost of its operatingmargins.

In the just concluded financial year the company had to reduce its selling price steeply given the intensity of competition and the rejuvenated focus of its rivals, besides the growth of new competitors such as, a strengthened Amtrex Appliances (after Hitachi of Japan took a stake) and Kirloskar Pneumatic. These companies are increasingly targeting the market for split airconditioners where the margins are better and where Carrier Aircon dominates. Operating margins during the year have fallen from 10.3 to 9 per cent, industry analysts generally expect the margins to continue to remain under pressure in the current year as well. The current set of results were more or less discounted since the second half is usually not spectacular and bulk of the gains are seen in the first half of the financial year. In fact the stock has been in a downtrend for all of 1998-99, shedding 30 per cent y-o-y.

German Remedies

The growth in profits from German Remedies accelerated adequately during the yearand the final figures came close to market expectations. The initial expectations from the company were a net profit closer to Rs 31 crore for the full year. But after a series of financial performances for the first three quarters of the last financial year which disappointed the equity markets, German Remedies, came good in the last quarter with a Rs 14 crore profit (however even this figure was scaled down from Rs 17 crore expected earlier). The net profit for all three preceding quarters amounted to Rs 13 crore, thus showing the scale of improvement. The growth in profits for 1998-99 was by 35 per cent to Rs 27.22 crore.

The stock had been performing very well in anticipation of the last quarter results, hitting an all time high of Rs 900 a couple of days before the results were announced. According to pharma sector analysts, the subsequent reaction in the stock was on account of the downtrend in the market and not on account of the results. Industry analysts feel that German Remedies should be able tokeep up its growth rates in the current year. The stock has returned 150 per cent in the last one year.