While the Wipro scrip has been hitting the upper circuit for the last four days, Tata Infotech has lost over 10 per cent of its market capitalisation. On May 3, just a day prior to the announcement of its results, Tata Infotech saw its scrip hit the lower end of the circuit filter on the BSE. Clearly, the markets did not expect that the company's financial performance would be at par with other IT majors. Even after a 70 per cent dividend declaration and a 1:2 bonus announcement on May 4, the scrip continued its downward spiral and closed at the lower circuit level of Rs 1,217 on May 5.

The reasons for this are not too far to seek. Though the company is merely a fourth of Wipro's size in terms of turnover, its topline growth during the year 1998-99 was just 21.13 per cent as compared to the latter's 30.64 per cent. While Wipro's turnover for the year was Rs 1781.8 crore, Tata Infotech clocked a sales figure of Rs 392.78 crore. Also, as against the 57.88 per cent net profit growthrecorded by Wipro, Tata Infotech's bottomline has grown by just 34.17 per cent. While Wipro's net profit for the year was Rs 170.2 crore, Tata Infotech's bottomline stood at Rs 46.06 crore. Though one may point out that that Tata Infotech's margins are much higher than Wipro's, it needs to be recognised that despite the higher margins, Tata Infotech has been unable to match Wipro's return on net worth (RoNW).

For 1998-99, Wipro has generated a 49.56 per cent return on its average net worth. Tata Infotech, on the other hand, has just managed a figure of 33.51 per cent. Considering that the return on market capitalisation (based on May 5 prices) for Wipro and Tata Infotech stand at 8.73 per cent and 3.10 per cent respectively, it would be no surprise if the Tata Infotech scrip continues to slide.

LML

If the peformance for the quarter ending March 1999 is any indication, LML has done exceedingly well. The company sold 83,680 vehicles up by 7.11 per cent from 78,122 vehicles sold during the quarterending December 1998. That the the period October to December is generally considered a lucrative festive period, helps put this performance in perspective.

However, a fall in average realisation per unit suggests that the higher unit sales was at the cost of margins. The average revenue per unit during the quarter ending December 1998 stood at Rs 25,662. This declined to Rs 25,466 during the quarter ending March 1999 period. As a result, the operating profit per unit sold has fallen from Rs 2,280 to Rs 2,171. In other words, operating margins have actually recorded a fall from 8.88 per cent to 8.53 per cent.

Additionally, despite the quarter-to-quarter growth, there are signs of a slowdown. The combined combined sales of the first two quarters stands at 1,61,803 unit in volume terms and Rs 413.43 crore in value terms which is 50.02 per cent and 49.64 per cent respectively of the full year (September 1998) figures. This shows that even if the company maintains the first two quarters' trend for the rest ofthe year, the growth during the current year will be marginal. To match the previous year's growth the company requires to post a double digit growth for the next six months. For the twelve month period ended September 1998, the company had recorded a 9.8 per cent growth in volumes and an 11.21 per cent increase in sales. Operating margins for this period stood at 9.53 per cent. The same figure for the first half during the current year is at 8.7 per cent. As such, even if the company shows a positive growth during the current year, it would be difficult to post higher profit margins, especially when the industry leader, Bajaj is showing signs of a smart comeback with its new product launches.

The stock market seems to have taken slowdown signal seriously. The stock has recently dipped below the crucial level of Rs 50. A tussle between the management also had its impact on the stock price. For the future, however, the company's performance is expected to remain decent. But a repetition of last year'sgrowth seem unlikely. As for the stock market, all the negative factors have been factored in. Any positive news like a favourable outcome of the management tussle, would be met by great enthusiasm.

Bhushan Sheets & Steels

It is a general perception that the entire steel sector in India has been doing badly. A look at the annual results of Bhushan Sheets and Steels would show it to be otherwise. Obviously realisations are down, but higher volumes from the expanded capacity has seen that the bottomline remains at similar level. At the end of 1997-98, the company had commissioned its expansion project in Sahibad, Ghaziabad in UP. This project enhanced the plant capacity by 3.5 lakh tonnes to 4.7 lakh tonnes and for galavanising by 40,000 tonnes to 1,40,000 tonnes. The total outlay was Rs 650 crore.

Since the facilities of the CR plant had enviaged an import subsitution product, all the extra volumes was easily absorbed by the market. A lower realisation in CR plates by Rs 2,500 per tonne and Rs1,500 per tonne in galvanised products was offset by higher volumes. Accordingly the sales turnover increased from Rs 454 crore in 1997-98 to Rs 676 crore in 1998-99. The lower realisations did not affect the margins. On the contrary the operating margins increased by 16.7 per cent to 18.7 per cent. Mainly, the company got benefit of low value of imputs - namely HR coils, whose price in the Indian market has crashed from Rs 18,000 per tonne to Rs 15,500 per tonne, for most part of the year. Since a part of company's products are also exported, the company managed to import a substantial amount of inputs in the form of HR coils.

The problem for the company has been higher interest, depreciation cost along with its policy of credit terms. The interest charges increased from Rs 22 crore to Rs 60 crore, while the depreciation charges increased doubled from Rs 12.15 crore to Rs 23.8 crore. Another problem could be the extent of sundry debtors. In year 1997-98, the sundry debtors had increased from Rs 57.27 croreto Rs 98.39 crore. Considering that the policy for receivables has not changed much for any steel player, this would have only gone up, putting a further strain on the interest income. Still the higher depreciation has resulted in lower tax rate for the company. This resulted in flat bottomline for the company at Rs 41.10 crore in 1998-99 compared to Rs 40.8 crore in 1997-98. The stock is howver trading near its 52 week low and unless there is re-rating for the steel sector, it is unlikely to perform better.

EMCEE (with contributions from Sarad Saraf, Deepak Singh Tanwar & Manish Saxena)