The number of Internet users, according to an estimate, has grown by 40 per cent in the last year. There is a concern that the number of users has not yet reached the one-million mark. In contrast, China, which does not have as many English-speaking people as India, has four million Internet users.

This should be a matter of concern for the Indian start-ups. The game has moved away from eyeballs to bottomline profits. More than that, the clouds on the US horizon are bound to cast shadows on Indian ventures and venture capitalists.

Some forecasts predict that the advertising revenue will reach the level of Rs 120 crore in the next five years. This is not good enough to support the kind of capital that is flowing in. Also not every website will succeed in garnering advertisements. The Indian consumer is well-known for his keen sense of value for money. If Internet offers his value, certainly he can be captured.

But cultural changes come in slowly. Producers of Indian goods and services have been traditionally looked upon with suspicion by consumers. The quality of products and services has always been in doubt.

So for starters, net advertising, if it should result in buying, should be backed by products and services on which the consumer can rely upon. Transaction-based websites, like commodity or stock trading, have good chances of clicking. In fact, all-in-one-window approach in the area of stock trading is the sure shot way to make the website viable.

Ultimately, what we see here is that the Web ends up substituting the traditional mode of advertising. It goes a step further. It delivers a menu, and ends up promoting the main line of business as well.

Such sites have a way of surviving, as the cost can be absorbed by the parent's core business.

What is interesting is business models are crystallising sooner than later.

E Merck
By launching Neurobion Forte in place of Neurobion, a B1, B6 and B12 combination product banned by the government from January 1, 2001, E Merck has made a quick attempt to tide over the uncertainties created by the ban.

Neurobion had sales to the tune of Rs 37 crore as per ORG MAT figures (February 2000) while the total turnover of E Merck for the year ended December 1999 was Rs 278 crore. The new product Neurobion Forte includes calcium pantothenate and nicotinamide in addition to B1, B6 and B12. Its cost of production is also higher due to addition of two new raw materials.

The price is also up proportionately from Rs 4 per strip of 10 tablets.

E Merck has made a strategic move by naming its new product Neurobion Forte on the same lines as that of its old product Neurobion thereby retaining the brand loyalty it enjoyed. Now, it would not have to work hard to create awareness about its new product.

According to the company, the new product has better therapeutic value than the previous one. The sales of this product as also the topline of the company would go up only when the volume goes up. However, E Merck, being very conservative, expects the volume to decline marginally due to the rise in the price as Neurobion Forte is only a replacement for Neurobion and the market size would remain the same. The turnover and bottomline will be maintained as the fall in volume will be offset by the rise in the price of the product.

E Merck expects its topline as well as bottomline for the quarter ended June 2000 to be higher than the corresponding quarter of the previous year. The topline for the quarter ended June 1999 stood at Rs 72 crore while the bottomline stood at Rs 6.5 crore. For the first quarter of the current year, E Merck registered a 10 per cent growth in its topline and a 42 per cent growth in its bottomline.

GAAP: Indian vs US
A company showing reconciliation of profit as per Indian GAAP and US GAAP has always been appreciated. Some people, who do not have in-depth understanding of accounting principles, continue to wonder why it is so. The reason is that the financial statement prepared as per US GAAP shows more transparent picture. There are three basic differences in these two principles viz segmental reporting, consolidation of accounts and deferred tax accounting. The said variance is proposed to be narrowed down within a certain timeframe.

The regulatory authority has already taken a step in this direction. It has made the disclosure of segment-wise revenue and profitability compulsory. This will be a very important addition to the quarterly results of the companies, as it will help investors to take more informed decision.

Presently, to get the same information, shareholders have to wait for the annual report. Especially, in case of corporates like Larsen and Toubro (L&T), such disclosures are very important. Till now, the company could hide the bad performance of a division under the good one of another. But it is expected to see a sea-change in its market rating once the first-quarter results come out. Not just L&T, but any company with multiple divisions will be in a dicey situation if some of its businesses are not doing well.

The consolidation of accounts means pooling together of financial performance of group companies. While doing this, the inter-company profits and balances are cancelled. A group company can be a subsidiary or an entity in which the investing company has got a substantial stake. The logic behind consolidation is that the dividend income received from such investment may not present a true picture of total benefits being derived by the company from such investments. Companies like Hindalco will benefit immensely whenever this practice is made mandatory in India. Returns from its recent investment of 54.6 per cent in Indal's capital will not get fully reflected on the financial statements till then. A major positive re-rating can be expected of the stock in the future.

Deferred tax accounting is the last step in eliminating the variance in two accounting policies. Future tax outflows are taken into account while ascertaining the profitability of the current year.

Once all these things become mandatory, Indian shareholders will be in a much better position to evaluate their investments.

KSESH( with contributions from Prashant Kothari and Manish Joshi)