The fortunes of the forging companies are closely linked to the purchases made by automobile manufactures and investment in industrial activity. The economic downturn has resulted in lower sales and lesser profits for most forging entities during the year 1997-98. Nevertheless, Bharat Forge has bucked this industry trend. The annual results show a rise in top line growth by a couple of percentage points to Rs 597 crore and a doubling of the bottomline to Rs 36 crore.

The decrease in extraordinary expense from Rs 38 crore in 1996-97 to Rs 10 crore has increased the earnings for shareholders. However, other income has declined from Rs 12.5 crore to Rs 8 crore. Although the company's operating margin has been lower at 19 per cent, compared to the 21 per cent achieved in 1996-97, several other forging entities have not even managed a single digit operating margin.

Bharat Forge has a diversified product portfolio, OEM approvals for supplies to European and Japanese companies and lowermanufacturing cost. Other forging companies--Ahmednagar Forging, Amforge, Elforge and Harik Crankshaft, for example, manufacture products which can be utilised only by automobile manufactures. However, Bharat Forge caters to both automotive and other industrial users. Hence the effect of a slump in the crankshaft division, was offset by higher sales in the industrial forging sales division.

The company's superior image saw its export turnover rising from Rs 46 crore to Rs 89 crore. Bharat Forge sources its raw material, which forms about 50 per cent of total cost, from Kalyani Steels at less than market price. This has also enabled it to post encouraging results. The budget proposals, though harsh for the forging industry (because they would result in higher alloy steel prices), would not effect Bharat Forge much because of its agreement with Kalyani Steels. No wonder then that Bharat Forge enjoys a far higher discounting than its competitors.

Coromandel Fertilisers

Coromandel Fertilisers'financials for the year ended March 1998 show that the company has achieved its highest ever turnover of Rs 472.53 crore. Its pre-tax profit is up by 21 per cent and the earnings per share has risen to Rs 14.13. In view of the higher profits, the management has proposed a dividend of Rs 3.00 per share compared to Rs 2.50 per share declared in the previous year.

While there is no denying that Coromandel Fertilisers' profits have gone up during the year, its profitability has taken a beating. The company's income from operations has gone up by 25.63 per cent to Rs 467.18 crore but its expenses have risen more than proportionately to Rs 397.88 crore. As a result, though its operating profit has gone up by 9.93 per cent to Rs 69.30 crore, the operating margin has declined from 16.95 per cent to 14.83 per cent.

The company has reduced its debt exposure considerably during the year and this has led to a 12.35 per cent decline in interest outgo to Rs 17.18 crore. Cash profit has, therefore, risen by over 20 percent to Rs 57.47 crore from Rs 47.81 crore. Depreciation was 16.50 per cent higher at Rs 8.90 crore and the pre-tax profit rose from Rs 40.17 crore to Rs 48.57 crore.

Pre-tax margin was however, lower at 10.28 per cent compared to 10.68 per cent achieved in the year ended March 1997.

The company has made a provision for taxation of Rs 14.20 crore, 29.68 per cent higher than the previous year. Profit after tax has increased by 17.62 per cent to Rs 34.37 crore. However, post tax margin has declined from 7.77 per cent to 7.27 per cent and return on net worth has fallen from 22.37 per cent to 21.90 per cent. With the government's intention to correct the NPK balance and expectation of greater encouragement to phosphatic fertilisers, Coromandel Fertilisers' fortunes are likely to take a turn for the better.

DCW

DCW's performance during the year 1997-98 has been unsatisfactory -- a reflection of the state of the caustic soda and PVC industry. Net sales have increased marginally by 2.3 per cent to Rs348.72 crore but the operating profits have declined 20 per cent to Rs 42.11 crore. Operating margins have fallen from 14.74 per cent to 12.08 per cent. Despite lowering of the interest burden and zero tax outgo, the bottomline has shrunk 83 per cent to Rs 3.02 crore.

The company's performance deteriorated mainly during the second half of the year. Though net sales jumped 21 per cent in the second half, the operating profit declined by 29 per cent. Operating margins have fallen from 15.56 per cent in the first half to 9.20 per cent. DCW witnessed a loss of Rs 1.44 crore during the second half as against a profit of Rs 4.46 crore in the first half.

The company has achieved a 28 per cent rise in caustic soda sales to 58,750 tonnes while the PVC volumes have come down marginally to 57,495 tonnes. The PVC business was hit by a 10 per cent fall in prices. Rising prices of VCM that the company imports have also affected its bottomline.

Furthermore, its capacity of 60,000 tpa is considered uneconomic and thecompany's focus on non-specialised grades of PVC has been reflected in the financials. The 25 per cent fall in caustic soda prices coupled with dumping from South Korea and the US, has also had a negative bearing on the margins. The budget has been a mixed bag for the company. The 8 per cent across the board import duty would help fight dumping of caustic soda, but the same would affect the VCM imports and thus the PVC business.

Emcee (With contributions from Manish Saxena, Sarad Saraf and Vikram Bhat)