Hind Lever ChemicalsHINDUSTAN Lever Chemicals has been able to post impressive results for the year 1997, despite the fact that other di-ammonium phosphate (DAP) producers had a difficult time during the same period. Sales have posted an increase of 19 per cent over the previous year to touch Rs 565.93 crore. Operating profit moved up from Rs 43.82 crore to Rs 49.64 crore, registering a rise of 13 per cent. Operating margin has however, declined marginally from 9.23 per cent to 8.77 per cent. Yet, even this would not have been possible to achieve, had the company's Paras brand not maintained its leadership in the east. While the western region was affected due to poor crops, no such problem was faced in West Bengal and Bihar where the company has a significant exposure.
Though DAP consumption in the west has fallen during the year, it has risen in the east. This appears to have helped the company to increase its production to record levels. DAP production rose from 2.34 lakh tonnes to 2.65 lakhtonnes and sodium tri-polyphosphate (STPP) production also increased from 37,000 tonnes to 42,000 tonnes.
A lower interest burden and tax provision have also helped to boost Hindustan Lever Chemicals' bottomline. The company's post-tax profit has improved by 43 per cent to Rs 24.75 crore and the net margin has increased from 3.65 per cent to 4.37 per cent. Management appears to be optimistic about the future and has announced a 1:1 bonus apart from a 180 per cent dividend. However, considering that either the farmers will have to pay higher prices following the government's decision to reduce the level of concession on DAP resulting in lower consumption or the company will have to maintain the same prices to achieve volumes, profitability in the current year is likely to take a beating.
Machine tools
Reports of Sandvik AB Sweden limiting the induction of modern technology in its Indian subsidiary to a few products raises issues, on the future viable operations of the Indian machine toolsindustry. The choice is between being either a technology player or a global volume player. In India the machine tools industry developed for catering to the planned expenditure in the heavy engineering sector. Unlike its Asian peers,the present structure of the industry is very lopsided. Thirty one per cent of production comes from two public sector companies( HMT and PRAGA); 53 per cent of production comes from 20 mid-sized private sector firms; 16 per cent from the small-scale and unorganised sector. The industry structure is presently undergoing a change.The largest machine tool builder has an uncertain future as it no longer has the price and purchase preference in government purchases.
For traditionally strong machine tools players who are also multi-product companies, machine tools as a percentage of total sales have been gradually falling. HMT has seen sales of machine tools and machinery falling from 49 per cent of the total sales to 43 per cent. The rise in the price of castings and rise ofdebtors predominantly the government PSUs have added to the woes of the company. Another major player HEC suffered from increase in receivables from government owned PSUs and was referred to BIFR in 1992.Some of the companies are putting most of their available resources in non-machine tool areas for future investments. Sandvik India which is a tungsten carbide cutting tool major is planning backward integration for its raw material requirement. Sandvik is planning composite plant for recovery of cobalt and tungsten from sludge, scrap and cathode.Globally, the automation drive created a demand for NC/CNC machines along with even greater demand for general purpose machines. Indian manufacturers have small to medium size capacity plant in general purpose machines. The global recession in machine tools industry in the period 1990-94 made world markets so competitive and price sensitive that the Indian manufacturers shifted their focus from making general purpose machines to NC/CNC machines.
The generalpurpose machines require huge economies of scale, parity in technology, international marketing network. Having relied on the centralised purchase of former east European countries, this prevented Indian companies from systematically building up distribution networks in their target market.
Though production of NC/CNC machines was completely absorbed by the market, the Indian industry produces just about 1000 NC/CNC machines a year, while Taiwan produces 3000 of these machines a month, resulting in non -competitive cost of the machines. Typically the Indian machine costs 2 to 3 times the cost of machine produced in Taiwan. A different strategy is starting a subsidiary company in the USA for marketing. ACE has adopted this strategy. Batliboi has tried to diversify into newer applications of machines, such as humidification and air control. But its sales in these areas are declining, possibly because foreign players are getting more orders. The financial performance of companies in the machine tools industryshows that the industry has high debtors and low asset turnover, which again implies that the companies are not in the volume game.
In today's competitive scenario, the focus has to be absolutely clear. Either you go for volumes or for technology. General purpose machines, turning and machining centres are fundamentally volume driven. The grinding machines and gear cutting are technology driven items. The newer applications such as plastic moulding are also technology driven. The choice is rather tricky, but either for focusing on technology or volume, there has be a consolidation period, else the Indian players would be unable to compete successfully in the world market.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
