Despite being hampered by poor availability of safflower oil for its refined-oil business and substantially higher raw-material prices, the the first-quarter results of the current year have been good. Operating margins have crept up from 10.2 per cent to 10.6 per cent; for the whole of 1997-98 the operating margin was 10 per cent. Net profits have improved further, both as a percentage of sales as well as in absolute terms over the corresponding period last year, by 18.5 per cent. Revenues were higher by 8.5 per cent.

Though the company has not given the break-up of capital employed during the quarter, it has, however, reported an improvement in its return on equity from 18.6 per cent to 22 per cent. More importantly, the company has reported that market shares have improved across almost all its product categories; especially for its Parachute brand. Perhaps prompted by the remarkable marketing successes of some food brands, the company has decided to focus on marketing of similar products; two of which are Top Ramen and Cup O'Noodles. To this extent it has entered into a strategic alliance with Indo-Nissin Foods, which owns the two brands, and will utilise Marico's wide distribution network; which has been acknowledged as its core strength.

While the Marico stock attracts a price-earning multiple reserved for the best of domestic companies, it has outperformed the Sensex by 18 per cent in the last couple of months. The company either markets or owns several strong brands such as Parachute coconut oil, Sunflower refined oil and Revive starch products.

Zenith

The chairman of Zenith has said that one of his objectives was to turn around the company within a couple of years. Going by the company's performance last year, it seems as if he might be able to keep his word.

During the last fiscal, the company had reported improvement in a number of areas. Capacity utilisation had improved. Revenues were higher by 40 per cent, margins were higher at 8.94 per cent from 3.84 per cent in the previous year. This was achieved by cost cutting, lower wages and raw material prices. The focus on exports has paid off, generating a 50 per cent growth, acting as a major contributor to profits. This was a result of the business restructuring initiated a couple of years ago.

The cash-flow position has also improved dramatically, with the business being able to generate substantial free cash. Interest costs have been reduced following conversion of Rs 14-crore loans into cumulative-convertible preference shares. A notable improvement was the reduction in the balance-sheet size despite the increase in revenues.

The company's accumulated losses have been reduced substantially during 1997-98; from Rs 23.88 crore in the previous year to Rs 12.46 crore. In the current year, Zenith will transfer the assets of its industrial tools division to a group company for Rs 14 crore. This move alone will wipe out the remaining accumulated losses.

The company's restructuring attempt, however, may not succeed fully for two reasons. One, over diversification of its businesses. The company at present manufactures steel pipes, dye intermediates, cutting tools and synthetic yarn. Second, the absence of size in any of its businesses (for example the synthetic-yarn capacity production is just 2,500 tonnes per annum). To that extent, the decision to hive off the yarn business will benefit Zenith further, especially as small manufacturers have been almost been pushed out of the marketplace, owing to sharply falling selling prices.

But the stock has already begun to respond to the restructuring and, in particular, to the profit that the company reported last year. In fact, since that eventful announcement the stock has appreciated by 50 per cent to Rs 32.