Priyadarshini Cement has posted poor results for the quarter ended March 1999. The net loss of Rs 3.27 crore was only to be expected as even Madras Cement has posted a loss during the same period. The company's cement despatches during the quarter stood at 2.25 lakh tonne while it despatched 7.72 lakh tonnes during the year 1998-99. The capacity utilisation for the year was 128 per cent as against 135 per cent in 1997-98. Poor realisations in the last quarter are reflected in the sharp decline in the operating profit margin from 10.4 per cent in the third quarter to 6.2 per cent. The company has barely managed to a post gross profit (after interest but before depreciation and tax) of Rs 1.41 crore despite the other income of Rs 75 lakh. The company provides for tax in the last quarter of the year and pays tax at the highest rate.

However, the good news is that in the first quarter of the current year not only is the demand buoyant -- particularly in Andhra Pradesh where theplant is located -- due to election demand (pending projects being rushed up) but the prices in the region have also firmed up. Since March, prices in the south have been hiked by Rs 16-20 per bag and virtually all units are operating at full capacity. The first quarter of the current year will be excellent but the company has ambitious growth plans and the funding remains a mystery. It will be acquiring Nagarjuna Construction Company's 1.98 lakh tpa cement division for a consideration of Rs 30.76 crore. The division's Rs 76.28 crore debt will also be taken over by the acquirer. According to reports, the capacity of the acquired unit will be hiked to 4,95,000 tpa by September. This seems to be a difficult proposition considering that neither the cash flow nor the debt-equity ratio (post acquisition) will justify such an expansion.

Despite being the cheapest stock available, the scrip has not shown any meaningful appreciation and the volumes are also very meagre. The basic problem is that commodity companiescan't afford to have small capacities. Though Priyadarshini Cement has the inclination to expand, funding for the expansion will be hard to obtain.

ONGC

Orders from ONGC are a boon for many domestic and internatioanl players. Especially for companies such as Larsen & Toubro, BHEL and the seamless pipe industry. But with no oil found in three of the four deep wells, there is a school of thought suggesting that in the current year, the orders from ONGC would at best be similar to last year. But many differ from the above point of view. Especially with the dip in production of oil by ONGC in last year compared to 1997-98, there is a an expectation that this time there is a chance that the tenders floated by company for drilling and exploration would be greater than last year.

According to the company, it is too early for one to come under such conculsions. But analysts expect that if the present oil price is sustained, one can see higher exploration and production activities taking in India itself.In the western region alone, the company has tenders worth Rs 1,400 crore floated every year. In 1998-99, orders worth Rs 600 crore was bagged by indigenious player, while Rs 806 crore was bagged by international players. According to the company, there has been a steady ratio of 1:1.25 over the last three years, on the amount of orders bagged by indigenious players and international players. Most of the time the orders got by the international players are for products not indigenously manufactured in the country.

Apart from ONGC, GAIL has just put out tenders inviting bids for supply of 1,250 km long LPG pipeline to be constructed from Kandla (Gujarat) to Loni (Uttar Pradesh). Since gas drilling uses more pipe per rig than oil drilling, such news is good for BHEL and Larsen and Toubro and seamless tube manufactures. But there are a couple of grey areas which needs to be sorted out before this happens. Firstly in spite of the drilling activities getting deemed export status, the companies don't get exportbenefits such as DEPB and advance duty drawback schemes. Hence, in spite of the fact that all project imports require 5 per cent duty, imports of materials for manufacturing them attracts higher import duties, resulting in severe cost disadvantage to Indian players.

Secondly, there is still a long way for hike in prices of seamless tubes to benefit Indian seamless tube manufactures. Reports indicate that there is huge dumping of seamless tube into the country, resulting in highly depressed prices for tubes in the country. In spite of doubling of the oil prices, there has hardly been much upward movement in the price of seamless tubes. Considering the small capacities of the Indian players compared to their peers in Japan and Korea, the Indian manufacturers also suffer cost disadvantage from lower economies of scale. This would mean that althougth higher expected orders from ONGC and GAIL can benefit BHEL and L&T, the seamless tube manufactures would continue suffer from low order bookposition.

Lubrizol India

The government has finally put to rest all speculation about who will be picking up its stake in Lubrizol India, a 60:40 joint venture between the government of India and Lubrizol Corporation of the US. IOC will buy 60 per cent of the Government's stake in the company which will subsequently offload 10 per cent of the equity in favour of the US company to effect a 50:50 partnership at a price determined by the Centre.

Lubrizol's performance can be said to be poor considering the sector it caters to. It manufactures speciality chemicals and additives for automotive and other industrial uses. It has an installed capacity of 45,500 mtpa of finished additive packages. Additives are complex synthetic chemicals which are added to petroleum fuels and lubricants to achieve the desired end use applications. Though the lubricant industry has recorded a phenomenal growth rate after its decontrol in 1992, Lubrizol has not been in a poistion to capitalize it. The company's sales havebeen stagnant at Rs 300 crore for the last six years. It has not been able to utilise its capacity fully.

The reason cited by the company for the poor performance in the last few years has been increased competition from foreign and local suppliers of additives, pressure on margins due to increased customer aspirations for driving out their costs, extended credit facilities, larger inventory holdings for meeting on-time delivery schedules and parity in custom duty on finished lubrications vis-a-vis chemical additives.

Apart from this, the other main factor that has affected the company is that the foreign partner is unwilling to transfer new products to the company as it wants the government not only to sell its stake but also to reduce it to 50 per cent. The current Technology Transfer Agreement (TTA) with the collaborators, The Lubrizol Corporation (LC), US, which was to expire in December, 1994 has been extended 10 times. In the pertoleum and petrochemical industry, chemical additives need continuesupgradation to meet the changing industry requirements. Since the government has finally taken the step of selling its stake to IOC, which will be funding the acquistion through internal accruals, future looks bright for the company. Further, being associated with the largest refining company in the country will have added advantages, not to speak of the renewed interest of the foreign partner.

With contributions from Urmik Chhaya, Manish Saxena & Shishir Asthana