Contrary to the performance of the steel industry elsewhere in the world, offtake in the European markets have been very high. All the steel majors including Thyssen have seen growth in earnings and margins by more than 10 per cent. Hence it is unlikely that Thyssen had walked out of the deal with Raymond because of its weak financial position. The deal looked beneficial to Raymonds, who would have garnered Rs 445 crore for a business which it has not been able to successfully develop. The project cost was Rs 450 crore and on a conservative estimate the asset value would be Rs 375 crore.

But Raymond had achieved in India what the entire steel industry was unable to do in the last two decades. The technology for manufacturing CRGO (cold-rolled grain oriented) steel was difficult to absorb and so far other producers used to manufacture CRNO (cold rolled non-oriented) steel. The user industry, which is the electrical industry, used to import these items.

The steel plant is fairly newand it takes a couple of years to fully absorb the technology for production of CRGO and CR strips. Till 1996-97, the capacity utilisation of the plant was less than 50 per cent. Partly this was due to the low offtake from the electrical industry, which is in the doldrums. However the margins in this business are extremely high, in the range of 25-30 per cent, and the minimum business from the Indian industry for 1 lakh tonne usage works out to Rs 400 crore. Taking such an lucrative monopoly business in India would have certainly been to Thyssen's advantage. The details of the JV shows that Thyssen's whole interest was to convert silicon steel manufactured by them elsewhere into CRGO and sell it in the Indian market. The JV would then be doing more trading business and thus be getting a small return. But when valuations are looked at in the context of Thyssen's overall India strategy, it was obviously getting a cheap entry into the country. On the whole, while there is no doubt that Raymonds needs the cash,the breakdown in negotiations would also hurt Thyssen.

Dr Reddy's Labs

Continuing from where they left in 1997-98, Dr Reddys Labs has once again come out with a 35 per cent increase in sales turnover this quarter, compared to the corresponding period of last year. The changing focus of Dr Reddys Labs of taking over fast-selling brands of financially weak companies from the earlier focus of only developing cheaper variants of successful molecules developed by MNCs has brought about a spurt in earnings for the company in the last four quarters. The first quarter growth rate has also been helped by a rise in prices of some of the bulk drugs produced by the company.

Last year the company acquired Becalax -- a vitamin B-complex, from Hyderabad-based Primex Pharma, and Riflex and Clamp -- brands from Sol Pharma. Analysts claim that in the first quarter, these brands have contributed to more than 15 per cent of the total formulations turnover of Rs 68.79 crore. A few of the old brands have also donevery well. Sales of Ciprolet increased to Rs 6.37 crore from 2.47 crore in the corresponding period last year. Omez ( Omezprazole), Stamlo( amlodine), Lomaday (lomefloxacin), Ketorl (Ketorolac), maintained their number one position this quarter.

Most importantly, the bulk drug division, which had witnessed a growth rate of only 1 per cent CAGR in the last five years, showed a jump in sales of 30 per cent. This was due to increase in prices of some of the bulk drugs by approximately 50 per cent in the last quarter. Nevertheless, the margins in formulations would have been effected by the rise in bulk drug prices. But the company says that volume sales have compensated for the drop in margins.

Further the closure of the bulk drug unit for upgradation to meet the FDA standards has resulted the inventory levels coming down below 130 days. The company expects to bring this down to 100 days in the current fiscal year.

DRL is one of the few scrips that have comprehensively beaten the stock market.

Forwardrates

The straightening of the forward rupee yield curve vis-a-vis the dollar is a heartening development in an otherwise grim market. The curve had been inverted after the Reserve Bank had directed banks not to arbitrage between the foreign exchange and money market in May, 1998. One month forward premia had soared to as high as 14 per cent while the six month premia had touched 12 per cent in the aftermath of the RBI directive. Essentially, an inverse yield curve means that the rupee is expected to depreciate faster in the near term compared to the longer term. Clearly, with the straightening out of the yield curve now, this is no longer the case. The arbitrage by banks between the call rates the forex market had led to the hardening of the forward premia. With the RBI clamping down, banks indulging in this practice had to square their forward positions which led to the near term forward premia flaring up. As a result the one month forward premium was more expensive than the six month forward premia.The Reserve Bank's moves, coupled with the World Bank's move to sanction about $1.2 billion worth of loans to India and, most recently, the announcement that SBI hopes to garner have since helped in propping up the spot rupee's sentiments, and the forwards too have softened.

(With contributions from Manish Saxena and Anirban Nag)