News reports indicate that the Fortune 500 giant National Semiconductors has entered into a tie-up with Bharat Electronics to manufacture its Cyrix brand of motherboards and processors in India. This development has come at a time when the low-end Intel processors are in short supply following Intel Corp's decision to stop producing such processors. So, the two partners can expect to grab a significant market share as there is a good demand for entry-level PCs priced below Rs 35,000.

Unbranded entry-level multi-media PCs featuring the Intel Celeron processor can be bought at around Rs 40,000, while MNC brands like Compaq, IBM and Hewlett Packard with an identical configuration are priced at over Rs 60,000. However, as the Celeron processor does not have an in-built cache memory, many prospective buyers are wary of purchasing PCs with this processor. Though Intel Corp has launched the Celeron 300A, which has a cache memory, the price difference is high. This acts as a majordeterrent for most of the small office, home office (Soho) segment.

National Semiconductor's Cyrix 233 and Cyrix MII300 have entered the Indian market, with assemblers like Tandon Computers and Graphtech India promoting PCs featuring imported Cyrix processors. Graphtech India's "IPC Value Magic", which the company claims performs as well as any branded PC with an Intel PII300 processor, retails at Rs 42,000. The "IPC Value Magic" uses the Cyrix MII300 processor, has a 32 mb RAM, a 2.1 GB hard-disk drive, a 1.44 mb floppy-disk drive, a 32-X multimedia kit, a 14-inch color monitor, a 104 keys keyboard and a two-button mouse.

Once the Cyrix processors and motherboards are manufactured indigenously, the prices of PCs featuring these processors are expected to fall further. Bharat Electronics and National Semiconductors project that assemblers using the indigenously manufactured Cyrix motherboards should be able to retail multimedia PCs at less than Rs 35,000. Once that happens, the demand from the Sohosegment is likely to explode, leading to massive sales and as a result, good profits for the National Semiconductors-Bharat Electornics combine. But the major gains will accrue to the domestic consumer, who will finally find buying a home-computer more affordable.

Dr Reddy's Labs

In spite of the hammering by the bear operators after the rouble crises, Dr Reddy's Labs is one of the few scrips that has outperformed the market in recent times. After falling to a low of Rs 349, the stock saw a price of Rs 493 on September 30. Analysts believe Dr Reddy's product exposure in Russia and the CIS countries includes many of the second-generation antibiotics. Since these generics are price-sensitive, lower margins and a lower sales growth were expected.

Nevertheless, the second-quarter sales figure shows a 26 per cent rise, compared with the corresponding period in 1997-98. Though this is much lower than the sales rise reported in Q1, the fact remains the enhanced topline growth would set the company oncourse to acheive the targeted growth rate of 35 per cent in 1998-99.

The margins in bulk drugs were under pressure. The first quarter had seen an increase in margins owing to a rise in bulk-drug prices. But the re-emergence of small-scale producers saw prices of key bulk drugs falling. Although sales grew by 42 per cent in this division, the drop in margins will hurt the bottomline.

Formulation sales, accounting for 55 per cent of sales turnover, grew by 15 per cent. Analysts believe that higher sales and margins in formulations will offset the lower volume sales in the CIS countries and the lower margins in the domestic bulk-drug industry. Besides, the company's decision to get out of the loss-making electrical-equipment business should see the stock surge further.

Crompton Greaves

After providing useful information to shareholders in its annual report for 1997-98 (the brand mercifully was not valued), Crompton Greaves (CG) has become the first A group company to come out with its first-halfresults, which on a half-to-half basis is expectedly not exciting. Despite being transparent like GE Shipping, the P/E for CG won't improve in a hurry because of four reasons.

First, its performance is infrastructure and industry related, and hence topline growth won't be higher than 20 per cent and the bottomline will witness single-digit growth. The calculations are based on the assumption that unlike in the second half of last year, CG won't have an OPM of just 6 per cent. It will also not be able to sustain the OPM of 10.25 per cent posted in the current year's second quarter. For 1998-99, the OPM is expected to be 9.5 per cent.

Second, in the domestic market, CG sells directly to SEBs, which ruins its working-capital management, amply reflected in 1997-98, when increase in working capital resulted in a negative cash flow from operations. There is no reason to believe that cash flow will be positive in the current year.

Third, it is overstaffed. In 1997-98, the staff bill itself accounted for 12.6per cent of sales. Against a work force of 12,000, the management is content with 7-8,000 and through VRS, the work force is to be reduced by 1,000. Four, it has a cow RoCE. The only silver lining is exports-the transformer division itself is expected to show a growth of 100 per cent.

Another crucial point to consider is that the RoCE (PAT+post-tax interest/Avg TCE) in 1997-98 was just 6 per cent. The management had no option but to invest in modernisation and upgradation, but for shareholders, the returns are not being generated. The interest income in 1997-98 and 1996-97 was greater than the PBT. At the current price, there is limited scope for improvement. However, it is also unlikely to decline substantially.

Emcee (With contributions from Sarad Saraf, Manish Saxena & Urmik Chhaya)