During the FY 2000, operating margins improved substantially by over two and a half percentage points to 30.8 from 28.2 in the previous year. This is primarily due to marginal increase in staff cost and the decline in the cost of input materials. Moreover, due to the change in the method of valuation of finished goods and stock in trade, the operating margins are much higher for the last quarter and the year ended March 2000.

SRF appears to have overcome its financial difficulties by generating funds from the sale of its investments in unrelated businesses and companies. These excess funds has been utilised primarily for its acquisition of DuPont 6,6 nylon cord unit and retiring its debt. Consequently, the company has been able to considerably reduce its interest burden to Rs 94.73 crore, down from Rs 106.45 crore in the previous year.

Meanwhile, SRF, being the largest domestic player in the nylon cords market, gained significantly by the imposition of anti-dumping duty on all imports of nylon cords from the South East Asian countries like Indonesia, Taiwan, Thailand and the like during the last quarter of the FY2000.

Subsequent to its acquisition of DuPont's 6,6 nylon cord unit, SRF now has a production capacity of almost 35,000 tonne per annum. Furthermore, the company plans to invest another Rs 10 crore in the recently acquired DuPont plant, thereby doubling the existing capacity to 13,000 tonne per annum. SRF would merge this unit with itself in the current year. This would result in tax saving from an accumulated loss of about Rs 60-70 crore.

The earning per share has improved to Rs 4.15 from Rs 2.19 in the previous year. Although the scrip has hit the upper circuit during the last couple of days. Considering that the company is poised for good times ahead, the scrip appears to be a good long term investment.

Ramco Systems
This company was formed as a result of the demerger of infotech division of Ramco Industries. Apparently, this was done to seek valuation of a pure software company.

Since the formation, the company's main interest has been in Enterprise Resource Planning (ERP) business. The ERP business is supposed to be the pre-requirement of e-business and therefore can be the growth area for the company. Till December 1999, the accounts of the company were consolidated with Ramco Industries. Only, the results of the fourth quarter are separately available. Though the topline figure is not available, the performance certainly looks impressive in terms of bottomline. The net profit is Rs 4.22 crore. On equity capital of Rs 7.73 crore, this translates into EPS of Rs 22 on an annualised basis. As is the case with most of the software companies, this is also a zero debt company.

The company's operations are not restricted to India. It has set up branch offices in many parts of the globe to cater to the different markets. The company has substantially altered its product mix to concentrate on high end market. It has also started developing customer-specific products. Some of the well-known products include Ramco VirtualWorks, Ramco e.applications etc. New products such as Web sales office and Web maintenance have been added to the suite of Internet gateway applications.

These are expected to strengthen its ability to implement robust e-business solutions. The new products help the users to get the benefits of an ERP through Internet. According to the management, it does not require a leased line. A dial-up line or even a Netcafe would do to avail of ERP services.It has tied-up with PriceWaterhouseCoopers (PWC) in Thailand for selling and implementing ERP products developed under Ramco System's brand name. It is also set to tap the potential in Singapore, Australia and New Zealand.

Software consulting projects and services contribute 30 per cent of its revenues. The same business is expected to grow at CAGR of more than 100 per cent over the next two years.

The cash resources have become substantial following the private placement of shares to the FIIs, made two months ago. It fetched an attractive price for the issue due to infotech boom. The issue price was Rs 3,420 per share, close to the then prevailing market price. The present market price is around Rs 820. This discounts the annualised EPS (based on the last quarter results) by 37. This is relatively less when compared to the high valuation enjoyed by most of the leading software shares. However, one may argue that the company does not have good track record to boast of. Still, the stock looks attractive, considering the growth potential in the near future.

Colour Chem
Colour Chem has reported a fall of 5 per cent in its net profit before exceptional items to Rs 28 crore from Rs 29.6 crore in the previous fiscal. The growth in the topline, which stood at Rs 296 crore, is almost flat when compared with the corresponding figure of the previous year of Rs 295 crore. However, the profit after tax shows an 800 per cent jump. This is due to the extraordinary expense of Rs 27 crore incurred by the company in the previous year by way of VRS expenses.

The reduction in net profit is mainly due to the rise in operating expenditure by 1.7 per cent to Rs 266 crore and increase in the provision for depreciation which stood at Rs 12 crore. The procurement cost of the company's major raw materials being petroleum products contributed to this rise in the operating expenditure.

Colour Chem is in the business of speciality chemicals and is an affiliate of Swiss chemical giant Clariant. Its main business areas include dyestuffs for textiles, organic pigments and auxiliaries for leather and organic chemical intermediates. The company's bottomline was affected by lack of demand in these user industries and possibility cannot be ruled out that the same may not continue in the future.

KSESH (with contributions from Gaurav Dua, Manish Joshi and Prashant Kothari)