Some optimistic calculations within market circles led to an expectation of a Rs 6 crore net profit for the first quarter. Against this, the company reported a net of Rs 1.7 crore. The market expectation was a first-half profit of Rs 12 crore and a full year profit of Rs26 crore (the second half of the year is usually better for German Remedies). Against these expectations and despite the first-quarter disappointment, the company is likely to report a full year net profit of Rs 24-25 crore, which is enough reason to continue to cheer. The stock has been in an uninterrupted uptrend ever since the market began to bet on the revised numbers for 1997-98. Against an initial estimate of Rs 17-18 crore, the company reported a net profit of Rs 21 crore. The stock has gained 63 per cent since then to its present price of Rs 515.

Western Hatcheries:

In the last four years, Western Hatcheries (which belongs to the Venkateshwara group) has reported a fast pace of growth, but unfortunately, very little of this has been reflected in the stock. Only recently, the stock has found takers, even though relative returns have been good and the stock offers a stable prospect of a better-than-average equity yield. The present equity yield offered is 12.5 per cent. The stock has slowlybut surely risen by 50 per cent in a fickle and uncertain market since February this year.

The reasons for its rapid growth in the last few years has been its focus on the very large and growing urban market and the hospitality industry largely in the western region, and its ability to develop new products and new applications. Of late, its sales of processed chicken appear to have stagnated. But that is because it has cut down supplies to other centres to concentrate on the Mumbai and Delhi markets, including catering to all the new multinational brands of eateries which have opened recently.

The prices of poultry feed, which is a major raw material, is a crucial determinant of profitability. The prices fell by 7 per cent last year, thus contributing to a rise in margins. WHL is also a reputed supplier of poultry feed and this business reported a 50 per cent growth in profits in the last one year. It has a dominant market share in both the processed chicken and the poultry-feed markets. Given the levelof mechanisation needed to achieve the scale of WHL's operation, competition is limited. These mechanised processes are capital-intensive and hence out of bound of most poultry farmers. The existing competition, therefore, is small and scattered, and the market is not large enough to warrant the presence of new entrants.

The Animal Healthcare division showed the maximum growth of 24.5 per cent last year. WHL has finalised plans for getting into newer and untried segments like nutritional products. But it will take some time before the results show. The capital investments have already been made and the plant will be operational in the current year.

Both the operating margins and return on capital have been improving despite being hit by depressed broiler prices during the first half last year. Operating margins have increased to 13.9 per cent from 11.5 per cent in the previous year, while return on capital employed has moved marginally to 15.5 per cent.