Driven by revenue generation of almost Rs 41 crore from its 162.5 mw naphtha unit, synchronised last August, the income from power generation in the second half of the year was higher by 58 per cent. This reckoning is based on the assumption of no hike in the tariff of its gas-based unit. However, Gujarat Industries Power Co Ltd's (Gipco) naphtha plant has resulted in under recovery of cost as a result of PLF being lower than 68.5 per cent (for gas based unit the PLF for the year is 89.05 per cent). The date of synchronisation is the date of commercial operation for a naphtha based unit and though the unit was synchronised in last week of August, for a month it was barely operational. For gas-based unit, PLF in the first and second half was virtually constant and simply annualising the profit gives a fair indication that the company has not been able to earn 16 per cent return on equity. On a half to half basis (after annualising), the increase in PAT is Rs 4.43 crore and increase in otherincome is Rs 3.68 crore.

The 2*125mw lignite-based Surat project (power and mining) is behind schedule by at least four months. To finance the project, the minimum equity dilution is expected to be Rs 326 crore. The basic problem with the company is that it is trying to do too many things too soon. Just when the naphtha project will start generating returns, equity will be diluted to finance Surat project. Clearly the returns to shareholders will not improve. The almost bankrupt status of the Gujarat Electricity Board has resulted in IDBI insisting on state government guarantee for recovery of dues.

The company also has in-principle clearance to set up 2*250mw plant at Surat. As a result, at least one more equity dilution in the three years after the dilution for 2*125mw project can be safely expected. The consistent equity dilution will result in the stock being an underperformer. No wonder the stock has been narrowly range-bound throughout the past year.

TVS Suzuki

Given the fact that TVSSuzuki (TSL) had already proclaimed crossing the milestone of a Rs 1,000 crore turnover, its 1997-98 sales of Rs 1,018.62 crore do not hold any surprises. Sceptics would point out that a mere 22.74 per cent jump in revenues is not very impressive when one considers that TSL has achieved a CAGR of 40 per cent over the last five years. The point, however, is that this growth has to be viewed against the backdrop of a recessionary year for two-wheelers.

Consider TSL's 12.27 per cent growth in volume terms on a year-on-year basis, compared to an industry growth of a mere 3 per cent. That the Indo-Japanese motorcycles at TSL have led the volume charge, however, comes as no surprise, given the recent swing in two-wheeler preferences from scooters to motorcycles. This is also reflected in the jump in market shares in this segment from 23 per cent to 25 per cent, which has been at the expense of market leader Hero Honda. All of this has led to buoyant operating margins, which improved from 11.98 per cent to 12.09per cent.

However, higher interest charges (up from Rs 5.67 crore to Rs 19.91 crore) have eroded earnings. This was mainly due to the 15.50 per cent debentures raised for funding the scooter project at Mysore and also expanding its existing facilities at Hosur. The increase in real terms is not that substantial, as the other income component has interest earnings of nearly Rs 15 crore from fund deployed in short-term investments. Thus with interest charges being offset against interest earnings, net profit at Rs 68.76 crore was up 26.49 per cent compared to Rs 54.36 crore last year. This was also aided to an extent by a lower effective tax rate of 32.08 per cent.

With TVS Suzuki now aggressively entering the big league scooter market, the company would have a full complement of two wheelers. Also given TSL's debt equity ratio of 0.8, the company should have no problem garnering additional funding for its new 1.5 lakh unit Mysore facility. Probably the only question mark over the success of the new 150 ccmanual geared scooter is the premium pricing niche. With the competition from the likes of Bajaj and LML already far ahead in terms of capacities, a lot could depend on TVS's ability to aggressively price its models to counter the competitive threat. Volumes and the ability to achieve economies of scale will play a crucial integral role in driving earnings.

Shriram Honda

The impact of the SE Asian crisis is clearly evident in the second half performance of Shriram Honda. In 1996-97, exports accounted for 21.2 per cent of sales. Considering that there is little reason for a drop in domestic demand, the poor second-half can most probably be put down to poor export performance. In the second-half, sales are down by 3.5 per cent compared to the first-half and operating profit margin is lower by 3.65 percentage points. The slight improvement in bottomline is due to a lower tax rate.

The poor second-half performance is expected to be reflected at least in the first-half of the current year. Despitedomestic demand, the company will have to either hike dealers' margins or reduce price to set off for sluggish export performance. This will result in lower margins. After expanding the capacity to 1.25 lakh sets, the company is going slow on its proposed expansion plan to hike the capacity to 1.75 lakh gensets. From the second half of the current year, the performance will be better, provided the company can find new domestic markets.

(With contributions from Urmik Chhaya and Percy Dubash)