The two other options in which the company proposes to deploy its potential surplus are building of information technology capabilities and creation of a reserve to combat competition.

``With debt raising capacity being high, the company is in a position to quickly raise around Rs 50-60 crore. Surplus funds will be at our disposal. However, the company has not set aside a reserve fund for the purpose of acquisitions and alliances,'' said Marico Industries' chief financial officer Milind Sarwate.

The fund-raising power is a by-product of strict capital deployment control, which has seen a 9.1 per cent turnover rise on only 6.2 per cent higher capital spending. Capital spending has been controlled by Marico in a scenario of seasonal build-up of raw material inventory, according to a companydocument. The company is in the crucial segments of edible oils, hair care, and processed foods, all of which have seen brands changing hands frequently. Marico is yet to make its first gambit in this respect.

Net worth of the company stands at around Rs 115 crore, and it has deployed total capital of around Rs 120 crore. The company will have the spending ability which will enable it to grab an opportunity of an acquisition or alliance. Surplus funds will also be utilised for the purpose of product development of new and existing brands.

In a recessionary period, the company has managed to bring down inventories l and raw material advances from 60 days in September 1997 to 56 days in September 1998. This is largely on account of the operational restructuring undertaken by the company last year.

``The reduction in inventory has been possible through tight control over movement of goods within the supply chain. Value chain has also been brought under a single umbrella,'' Sarwate said.

Theorganisational revamp has enabled the company to bring under one roof operational, sales and marketing functions which has helped the company reduce the inventory level.

Marico Industries has been one of the few companies which brought out audited financial results for the first half period of the current fiscal.

The company posted a 19 per cent growth in net profit to Rs 20.4 crore in the first six months ended September 30, 1998, as compared to Rs 18 crore in the corresponding period last year. Net sales rose 9.1 per cent during the period to Rs 246.8 crore from Rs 226.7 crore in the same period last year. Operating margins kept pace with revenue growth and was maintained at 11.5 per cent of sales.

INSIGHT
Product extensions via inhouse R&D needed

There is absolutely no denying the advantage Marico holds in terms of a low debt gearing, which can easily be leveraged by the company. Illustrating this fact is the low debt equity ratio of 0.09 for the year ended March 1998.

In factthe repayment of term loans to the tune of Rs 11.25 crore, have helped reduce Marico's total borrowings to Rs 18.71 crore in March 1997. All of which has helped reduce the interest burden by 41.62 per cent to a mere Rs 1.69 crore in the first half of 1998-99.

Greater operational efficiencies - a result of the restructuring undertaken last year, have further resulted in an increased cash flow from operations to the tune of Rs 41.6 crore (Rs 28.6 crore last year).

However, given that Marico operates predominantly in commodities driven product segments, the intense competition in the hair and cooking oil segments from multinationals and the consequent higher promotional expenditure could squeeze margins. This is where Marico would do well to consider an acquisition led growth strategy, given its surplus cash accruals. The company should also try and develop product extensions via in-house R&D.