Though the restructuring exercise is expected to save Rs 200 crore on interest burden, any further improvement largely depends on the Hot Rolled Coil (HRC) prices. After the sharp fall witnessed in HRC prices, last week saw them recovering to around $280-300. Any fall in prices will hit the company hard, as it does not have a presence in value-added products including Cold Rolled Coils, where realisations are higher. For the previous year ended March 2000, the interest charged to Profit & Loss account is only Rs 197.67 crore. This may make a layman feel that the envisaged plan itself could lead to a turnaround.

However, taking a closer look at the annual report of 1999-2000, it is seen that nearly Rs 428 crore has been included in `Pre-operative expenditure'. Clubbing this with Capital Work-in-Progress, the figure stands at Rs 3,841.14 crore. While part of the amount will be directly charged to revenue, balance will be apportioned to various fixed assets in future. This could mean a substantial acceleration of depreciation. Even if cash profits are not affected by that, bottomline will continue to be in the red.

Moreover, once the entire project goes on stream with commercial production, the entire amount of interest cost will be charged to income. Even at 100 per cent capacity utilisation of 16 lakh tonnes, assuming HR coil price of $ 300 per tonne, total revenue from operations could be Rs 2,400 crore ($ 1= Rs 50). At that level, an OPM of 20 per cent might barely mean operating profit of Rs 480 crore. This amount could only satisfy the interest obligation.

Statistics show that the company is in for trouble. Despite all the restructuring initiatives taken, steel prices will need miraculous improvement for the company to come out of the woods.

Colgate Palmolive
Higher volume growth of 13 per cent coupled with the doubling of excise duty to 16 per cent on the company's main product viz., toothpaste, has had the effect of boosting the revenue of Colgate-Palmolive for the quarter ended December, 2000. Total revenue stood at Rs 306 crore, up 19 per cent from Rs 258 crore in the corresponding quarter.

Since excise duty is clubbed with net sales, an increase in the rate of duty has the effect of increasing the net sales even without any corresponding rise in the volumes or the selling price.

According to a recent survey, the demand for toothpaste is expected to grow at a rate of 4.5 per cent. The growth achieved by Colgate is commendable, considering the overall industry scenario in mind. The task is more appreciable, due to the competition from HLL which has a wider distribution network, as well as deeper pockets than Colgate. The company commands around 50 per cent share of the Rs 1,000 crore toothpaste market followed by HLL which has a 35 per cent market share.

Recent press reports mentioned that Procter & Gamble would be entering this market with its product Crest. However, analysts are sceptical that P&G would take this step knowing very well the cut-throat competition that exists at present.

Retaining and increasing its market share has been a tough job for Colgate. This has been achieved by incurring a huge advertisement expenditure of Rs 65 crore (Rs 43 crore). At the same time, it has not been able to pass on the hike in the excise duty entirely to its consumers. This has resulted in a fall in the operating profit margin from 9 per cent to 8 per cent.

Colgate's net profit stood at Rs 12.2 crore, up 22 per cent from Rs 10 crore in the corresponding quarter. This has been the highest growth rate in the last 4 quarters. However, competition from HLL still remains a matter for concern and has the potential to squeeze the operating margins of the company significantly.

Manish Joshi & Prashant Kothari