Coming to the bottomline, it is a mere Rs 55 lakh compared to Rs 19 crore in the corresponding period of the previous year. The operating profit margin has come down from 42 per cent to 38.5 per cent. The 50 per cent increase in other income has been a saving grace but interest costs have taken a toll on the bottomline. The interest outgo jumped from Rs 15 crore to Rs 27 crore. This can be mainly attributed to the fact that huge amount of funds were borrowed for revamping Goa hotel, developing new hotels at Bangalore and Udaipur. There were plans to set up another hotel at Delhi which had to be abandoned mainly due to shortage of funds.

The other significant non-cash expenditure affecting net profit was a 60 per cent rise in depreciation to Rs 13.50 crore. This again is the result of the clubbing of depreciation of its two hotels in Mumbai and Goa. It will go up further next year due to the commissioning of its Bangalore hotel. However, the increase might be neutralised by higher revenues.

The hotel industry has become very competitive as all major hotels are in the process of expansion. ITC Hotels, the Oberoi group, the Taj group and Asian hotels have planned projects amounting to over Rs 3,000 crore across major cities and tourist centres. The profitability projections of new projects as well as current operations will be severely hit due to phasing out of income tax benefit under Section 80 HHD by 20 per cent every year.The growth of live audio-visual communication devices has started affecting inflow of business tourists. Had Hotel Leela stuck to its two properties at Mumbai and Goa, it would have been least affected. This is because most of the revenues for the Mumbai hotel comes from airline tourists while leisure tourists account for most of the Goa hotel's revenues. Although the Udaipur property would also get most of its revenues from leisure travellers, the same cannot be said about its Bangalore property.

Pidilite Industries
Pidilite Industries' impressive performance for the quarter ended December 1999 could inspire its shareholders to stay glued to it. Add to this, the news of the 1:1 bonus inspired by hefty reserves at Rs 123 crore and the interim dividend of 40 per cent.

Selling products has not been much of a problem for this adhesive and sealants giant due to its brand image and aggressive marketing through wide distribution network. This is reflected in the positive response received by its newly launched arts and stationery products. Its FEVICRYL brand in acrylic colours and Prime tape are also doing well.

At present, it is the largest resin manufacturer in the country, besides being a market leader in adhesives with 60 per cent share. However, data about lucrative speciality chemicals' business is not separately available. Sales, net of excise, for the third quarter have jumped by 25 per cent to Rs 105 crore mainly due to volume growth and new product launches. There has been operational cost-cutting which is the result of improving the supply chain management by implementing ERP & TQM and retirement of excess manpower. All these factors have boosted operating profit by 65 per cent to Rs 28 crore. With most of the company's long term loans getting repaid, the interest cost is coming down rapidly. After making almost double provision for tax at Rs 7.40 crore, the PAT before extraordinary items stands at Rs 16 crore, showing an increase of 60 per cent.

The reduction in excise duty on PVC, one of the raw material, from 24 per cent to 16 per cent in UB 2000 will help in further bringing down the operating cost next year. In a diversification move, the company has acquired the Ranipal brand of whiteners from Indian Dyestuff Industries. It is expected that the company will face tough competition from established players like HLL and Jyothi Laboratories. But Pidilite feels that Ranipal is a strong brand and the only problem was with its marketing and distribution. The company is also in the process of forming a wholly-owned subsidiary in Mauritius to source raw materials and to find an export market for its products.

Assuming that the company ends the year with Rs 50 crore profit, it will achieve a high RONW of 37 per cent and EPS of Rs 41. At the current market price of Rs 680, this translates into P/E ratio of 17, which seems to be low considering the fact that 61 per cent of its sales come from branded products, an indication of strong brand value. Additionally, the company has a very strong distribution network and a sound management. The other aspect meriting consideration is very low floating stock of the company because of 73 per cent holding by promoters and 9 per cent holding by financial institutions. It is worthwhile accumulating this stock at every decline.

Telecom mergers
The era of consolidation initiated by Bharati Enterprises' Sunil Mittal's acquisition of Skycell last year gained further momentum with the recent announcement of proposed mega-mergers between prominent cellular licensees. The proposed merger between Birla AT&T and Tata Communications Ltd would create a strong post-merger entity operating in the most prosperous and lucrative western belt of the country. Whereas, the proposed merger between Escotel and Modicom would operate in prime telecom circles of Punjab, Haryana, UP (west), Karnataka and Kerala. Interestingly, due to its huge growth potential, the telecom sector has prompted the age-old business rivals to come together.

Would this urge to merge continue? Yes, experts believe that the telecom sector would witness many consolidation moves in future. Except for the cellular services in four metro cities, the huge infrastructure investments bundled with high license payments have made the projects quite an unviable proposition. Especially the operations in `B' and 'C' category telecom circles have failed to take off or stand cancelled due to license fee payment defaults as in case of Koshika Telecom in UP (west). Secondly, the lack of exit routes in terms of prospective buyers also seems to be the reason behind the proposed mergers. Moreover, consolidations would result in economies of scale in terms of lower back office and promotional expenses.Experts predict emergence of four or five national brands instead of various regional brands. Such consolidated ventures operating across the country would provide better and value added services to the consumers.

Emcee (with contributions from Manish Joshi and Gaurav Dua)