The overwhelming pace at which the Internet has been growing throws up a number of new opportunities for business and Infosys Technologies has been quick to recognise this. The company believes that e-commerce will drive its future growth and has begun to gear itself to meet the challenge. While on the one hand it has put in place a three-level training program for its employees, on the other, it has taken initiatives to strengthen its existing infrastructure. These steps are likely to pay good dividends in the future.

During the quarter ending September, e-commerce projects contributed 10.3 per cent to its revenues compared to 6.4 per cent in the preceding quarter. The company posted a 94 per cent growth in operating profit and a 142 per cent growth in net profit. However, the much-expected improvement in operating margin in the quarter ending September over the quarter ending June has not materialised. In fact, operating margin declined from 37.67 per cent to 36.65 per cent.Yet, it needs to be recognised that the company has been re-orienting itself and the results of its efforts will be evident in the current quarter. What is a matter of some concern is that the company continues to be heavily dependent on the north American market. Hence, any slowdown in the US could take a heavy toll on its profitability. Despite efforts to increase the percentage contribution from Europe, it has failed to do so. Contribution from the European market has fallen from 16.4 per cent in the quarter ending June to 14.8 per cent. Geographical risk diversification is one issue that the company needs to seriously address.

Archies Greetings & Gifts

While on the one hand, the Internet offers an opportunity for companies like Archies Greetings & Gifts to vend their wares on-line, on the other, it also poses a threat to their very existence. Having recognised the opportunity, the company has decided to launch a web-site that will enable people to buy its products through the net. In theabsence of cyber-laws in the country, Archies will carry out transactions without involving credit cards. Buyers would be free to place their orders on-line and these would be attended to by the nearest Archies store. Payments, of course, would be accepted through traditional means but the service will be offered only in select cities.

Once proper cyber-laws are in place, even payments could be accepted on-line and this would enable Archies to expand its reach much beyond the cities where it has a physical presence. As transactions over the net would help save on a number of cost heads, margins from the business could be expected to increase. However, considering the possibility that there could be quite a few start-ups based purely on an Internet-trading platform, players like Archies that have a large physical franchisee-network may suffer a cost disadvantage and the expected increase in margins may not arise. In fact, in a scenario where one would be free to make payments in any currency through creditcards, competition would be even more intense. Though volumes could be expected to move up for individual players, margins would only drop.

Besides, the single-largest revenue earner for traditional greetings and gifts shops -- the greeting card -- could face competition from its virtual counterpart. There has been a proliferation of web-sites that allow surfers to e-mail virtual greeting cards free of charge. A number of such sites earn their revenues by offering links to other e-commerce sites or through advertisements. Few virtual malls offer the free facility simply to attract more customers. This might be the route that Archies would eventually have to adopt. For Archies, launching an e-commerce web-site is not merely a means to expand business but a matter of survival as well.

Grasim Industries

On comparing Grasim's operating profit for the year 1998-99 as shown in the P&L account with the figure arrived at by calculating the division-wise figures provided by the management, one gets adifference of slightly above Rs 60 crore. The figure mentioned in the P&L account is lower. The reason for this could be that in trading and operations (shown as "others" in the schedule on turnover) the company has incurred loss. What makes it worse is that trading operations and "others" contribute Rs 664.24 crore including Rs 27.36 crore service income. This basically means that the these operations contribute 17 per cent to the topline (net of inter unit transfer) and lower net profit by at least 28 per cent. Grasim's PAT for the year is Rs 163.81 crore. The situation was not much different even last year. The figures are available only for 1998-99 and 1997-98.

It is logical to believe that the company will be getting out of the trading and "other" activities except perhaps software as it is a negative contributor to the bottomline. The group has taken a harsh decision of getting out of the sea water magnesia business as it was not found to be viable. Even an announcement from the management that it isgetting out of the "other" operations will have a positive impact on the stock price. Since the management has chosen to voluntarily provide segment-wise information, it would have been more useful had it explained the performance of trading and other operations also particularly considering its contribution to both the topline and the bottomline.

Emcee (with contributions from Sarad Saraf & Urmik Chhaya)