The operating expenditure of the company has, however, gone up by a meagre half per cent only and stood at Rs 71 crore due to decline in raw material consumption in spite of an increase in the turnover. The raw material consumed amounted to Rs 21 crore as compared to Rs 23 crore in the previous year. The operating profit has, therefore, shot up by a whopping 56 per cent to Rs 17 crore from Rs 11 crore.

Depreciation cost, which is an important part of the total cost, has fallen down by 28 per cent to Rs 1.3 crore from Rs 1.8 crore. Moving in tandem with the operating profit is the net profit which increased by 63 per cent to Rs 9.3 crore from 5.7 crore. The basic EPS stood at Rs 7.94 while the diluted EPS for six months was at Rs 13.56.

Pfizer India is a 40 per cent subsidiary of Pfizer Inc which has announced its merger with Warner-Lambert, creating one of the world's fastest growing pharmaceutical company. It will have a turnover of $28 billion and spend $4.5 billion on research and development activities. It has a research pipeline of 138 compounds under development some of which promise to be blockbusters. Also Pfizer is renowned for its marketing capability as it has more than seven drugs which generate revenues to the tune of $1 billion every year.

Eventhough the parent has such credentials to speak about still its Indian subsidiary has not been able to reap the benefits of the parent's strong position in the pharmaceutical industry. Pfizer has powerful brands like Corex, Teramycin, Protinex and Minipress XL in its portfolio most of which are very mature, for example Teramycin was launched in 1950, while Corex was launched in 1964. There have not been many new product launches by Pfizer India.

Pfizer's future prospects would depend on the introduction of new products from its parent's stable which is not happening at present due to the setting up of a 100 per cent subsidiary in India by Pfizer Inc. All new product launches will be through this 100 per cent subsidiary while Pfizer India would provide marketing and other infrastructure to it. This would imply that the status of Pfizer India would be reduced to that of a marketing company only.

Godrej Soaps
Godrej Soaps turnaround looks very impressive at the first sight. Therefore, prima facie, the stock looks grossly undervalued if one goes by the P/E ratio. The EPS for the year ended March 2000 was Rs 10.33. At the current market price of Rs 37, it is discounted merely by 3.5 times. However, it is not too difficult to figure out the reasons for the same from the company's annual report.

Topline has declined by 19.5 per cent to Rs 684.32 crore (after adjusting for profit on sale of investments). This was due to a reduction in the high turnover-low margin business of commodities trading and contract manufacturing. Further evidence of the same is available from the following figures. Income from commodities trading has fallen by 95 per cent to Rs 14.6 crore. Sales of branded Godrej products have increased by 28 per cent to Rs 324.44 crore, non-branded products have fallen by 33 per cent to Rs 58.04 crore. Chemicals' sales has increased by 24 per cent to Rs 290.74 crore. The improvement in operating margins has been good from 5.33 per cent to 7.23 per cent.

Interest cost has come down by almost 20 per cent to Rs 47.74 crore. Depreciation stood at Rs 23.42 crore, registering 11.3 per cent rise. After adjusting for profit of Rs 50.93 crore made on Sara Lee divestment. The bottomline was in black with Rs 10.06 crore of post-tax profit as compared to a loss of Rs 29.93 crore in the previous year. If this profit figure is taken into consideration for calculating EPS, it would be a mere Rs 1.68.

The increase in its branded products sales would have been aided by its acquisition of some brands like Ezee, Trilo and Key in August 1999. Some of the new products launched during the year include `Fairglow' soap, varieties of Godrej Kali Mehendi. The full effect of these will be visible in the current fiscal. Better management focus on its businesses has enabled it to boost sales of chemicals and branded products in 1999-00. It needs to plough back the profits earned in to these businesses in sales promotion and new products.

The company has been looking to seek better valuation akin to other FMCG companies. To achieve that objective, it has been evaluating the possibility of chemicals division, which contributes roughly 40 per cent of the total turnover. Though the division has shown good performance in the year under review, it has been a low-margin business. Consequently, with overheads, the division nullifies to a great extent, the profits generated by consumer products division. The company will do well if it can get rid off the investments made in group companies. Setting up a holding company for managing all the investments will not be a bad idea. This can reduce the size of the balance sheet significantly.

The first quarter performance in FY 2000-01 of the company will reveal if its good performance will continue. In the meanwhile, it will take long for the company before it could command a P/E like HLL or Colgate. As for the immediate future, the potential of upside from the current market price looks limited.

-- KSESH (with contributions from Prashant Kothari and Manish Joshi)