The turnover of the acquired company was $24.3 million (Rs 109.35 crore) for the previous year 1999-2000. Compare this to Silverline's turnover of Rs 195.23 crore for the same period. It means the acquirer could see its topline boosted by nearly 50 per cent in the current year. But, there is a catch. Though Sky Capital boasts of big client names such as American Express, AT & T, Cable and Wireless etc, nearly 60 per cent of the income was coming from Silverline. Adjusting for this, the net addition to operating income could be around 20 per cent.

However, the important aspect of the move is to diversify the customer base. Currently, most of the companies derive a major portion of their revenue from US customers. This exposes them to the risk of relying on a single economy.

As a result, they are vulnerable to any adverse changes taking place over there. Moreover, there could be a saturation point in the US. The three acquisitions made by Silverline are widely distributed in different parts of the world with entities located in Canada, UK and HongKong.

The third one is like hitting two birds with one stone. Even though Sky Capital is headquartered in HongKong, the promoter holding 95 per cent stake is Australian. The promoter will be retained as one of the key management member of the company. His role will be to explore the Australian market alongwith the Far East market where the acquired company is operating.

More such buy-outs are in the offing as nearly $50 million proceeds are still lying idle. However, acquisitions alone are not enough. The challenge lies in exploiting the full potential of the acquired resources. Only time will tell if the company succeeds in doing that.

The acquisition news is on the back of impressive first quarter performance. The income from operations witnessed a growth of 59.45 per cent to Rs 64.96 crore. Operating profit margin too had improved by two and half percentage points to 40.78 per cent. The full effect of 77.34 per cent growth in net profit is not reflected in quarterly EPS as the equity capital has gone up by Rs 8.70 crore due to the ADR issue. Despite all the developments, the share price is resisting to move upwards. In fact, it is quoting at Rs 366, way below its yearly high of Rs 1,395.

Hero Honda
Just when it was being perceived that the automobile sector had met its Fait Accomplii - in the from of an oil price hike, the sector has returned a neat performance in September. Though, the motor cycle segment has grown by 26.2 per cent, it indicates a slowdown from the earlier pick-up in the volumes.

Hero Honda , the market leader in the segment has reported a 42.1 per cent growth in volumes in September as compared to the same month in the last year. Also, the company sold 4,79,630 units as compared to 3,38,326 units in the first half of the year ending September, implying a 42 per cent growth.

However, the moot point is whether Hero Honda will be able to continue with the blistering pace of growth. Firstly, there are concerns of an impending slowdown in the motorcycle segment growth. Moreover, the competitors are fast catching up. Bajaj Auto for instance has sold 2.02 lakh units as compared to 99,236 units in the first six months of the fiscal, a whopping 104 per cent increase. Moreover, it has planned a slew of model launches in this category.

Of late there have also been concerns voiced over the 100 per cent subsidiary of the Honda motors in India. However, the subsidiary should not pose as a threat until 2005, since it will be engaged exclusively in the manufacture of scooters till then.

Despite the slowdown signs visible in the segment, Hero Honda is unlikely to be affected. Moderate penetration levels and poor transport facilities would sustain demand for two-wheelers in the domestic markets. Also, the shift in demand from scooters and mopeds towards motorcycles is likely to continue as the rural and the urban youth constitute the bulk of incremental demand.

Also, as regards competition Hero Honda is well entrenched in the markets with a strong brand value. The company has been successful with new variants in the segment. The CBZ model sales have provided a major boost to the sales. This comes on the back of highly successful Splendour model. This constitutes more than 50 per cent of the total sales of the company.

Moreover, the company has targeted exports in a major way. The figures for May this year were a whopping 340 per cent. Whereas, in June the figures stood at 140 per cent. The CBZ and the Street Smart models have found a good market in SriLanka. Also, the company has set up an automated work shop in Bangladesh. The company has decided to phase out the Sleek model in the country due to lack lustre demand. Although, the Sleek is being exported to Argentina as of now.

Marketing strength of the company has been one of the key strengths. And by promoting the fuel efficiency mantra in India and stressing on the comfort value the company has been successful in increasing its market share.

Moreover, a strong technology support from the parent Honda has been a key to the strong brand and product portfolio of the company. Premium pricing and a tight leash over costs especially in terms of lower working capital has ensured high profitability for the company. A couple of upgrades and two new variants to scheduled for a launch in the coming year, the company would be able to take on the growing competition.

Manish Joshi and Sachchidanand Shukla