With polymer prices falling it is but natural that finished goods prices will also fall by about the same magnitude. The advantage to players such as Supreme Industries and Padmini Polymers is that the drop in prices of finished goods leads to an increase in their volume sales. The volume sales increased to 30,983 MT during the first half of the current year as compared to 27,011 MT in the corresponding period of the previous year.

Although the product prices of all the key moulded and extruded products fell, the company wasable to maintain the total sales growth through the rise in revenues from other items. The other items figure in the total sales turnover has increased by 152 per cent in the first half of current fiscal compared to that of same period last year. In the first half of current fiscal the sales from other items was Rs 26.18 crore as compared to Rs 10.38 crore in the corresponding period last year. The other items include revenues got by trading of polymer items. The company gets huge discounts from Reliance and IPCL as it buys bulk quantities of polymers. These are then sold to other small scale processors. In effect, SI earns a margin of approximately 8-10 per cent on the resins sold.

Other items contributing more than 10 per cent of total revenues earned in the first half ending December 1998, compared to less than 5 per cent in the corresponding period last year, implies that the realisations of the company would have taken a small hit. But what seems to have helped is the steady downward trend in polymerprices, which is the basic raw material for the company. All this has helped in maintaining the company's operating margins at more or less the same levels as that of the previous period. The operating margins in the first half ending December 1998 stood at 16.02 per cent compared to 16.9 per cent in the corresponding period, last year.

All this has resulted in a 20 per cent growth in the bottomline. The rise in bottomline would have been more, but for higher interest and depreciation expenditure. The depreciation would be higher in this fiscal as the company would be getting more into extrusion products to generate additional volumes. The only problem is that the margins in this extrusion business are very low, as there is a lot of competition from SSI units. The stock markets have also given the stock a higher discounting. From a low of Rs 148 at the start of October 1998, the stock price has shot up to Rs 184.

Nicholas Piramal
The third quarter results announced by Nicholas Pirmal (NPIL) showa modest 10 per cent rise in the bottomline and a decline in both operating and net margins. The bottomline increased from Rs 8.27 crore to Rs 9.16 crore, showing a growth rate of 10 per cent while for the nine-month period, the bottomline growth was more than 17 per cent. Obviously the earnings growth rate of 20 per cent in the first half has fallen down to only 10 per cent.

One thing that is very clear from the results is that the pharmaceutical business has not been very profitable for the company. Till last year, there was a view that the glass, flacconage and the bulk drug divisions were a drain on the company's margins and growth rate. After the restructuring of the company effective from April 1998, the company hived off the flaconnage division and the bulk drug division into separate joint venture companies. A transfer of accounts was expected to show higher margins and bottomline growth of NPIL. But if that was true then this quarter should had seen a much higher operating margins and also a highergrowth rate.

In fact the operating margin in the nine-month period ending December 1998 was at 15.29 per cent compared to 17.57 per cent in the corresponding period last year. One of the reasons for the slow growth rate could be due to the fact that the contributions from the subsidaries have declined. The company has more than 9 strategic alliances, 3 subsidaries in manufacturing and three investments companies. The OTC business was operated by Global Home Products. With the start of the JV with Reckitt & Colman and the subsequent transfer of brands, the major role of the subsidiary seems to be over.

Nevertheless, the stock market seems to be upbeat on this counter for the last two weeks. The stock price has shot up from Rs 342 at the end of December 1998 to Rs 397. Perhaps the belief is that the ordinance for the Patents Act by the cabinet ministry would not really affect the operations of Nicholas Piramal. Effectively, the company is a major force in the marketing of drugs and even if the EMR route isadopted, foreign firms may allow NPIL to market their drugs at the payment of royalty. Of course, the government can also help the company's cause by passing the compulsory licensee clause which would allow it to intervene in case it finds that we need to have more manufacturers of a particular drug in India. This would allow NPIL to manufacture and sell a product after paying a suitable royalty to the patent holder.

With contributions from Manish Saxena