The general perception was that spurt of new flyovers constructured in Mumbai and adjoining districts should have helped Gammon India. To some extent this is true as the company has seen an increase in its bottomline by 42.8 per cent.

Further, the company's turnover has also risen by 52 per cent - making the company one of the outperformers in the industry.

But a closer look would suggest that although the company's performance is good, unless it improves its order book position - the stock market would not be giving it a higher discounting.

Though the company has shown a strong growth rate, it has been at the expense of operating margins. Now for a company like Gammon India, which is both an equipment supplier as well as a contractor, margins generally do not change much at the operating levels. However the competitive bidding in this area has seen the company ending up with lower margins. The operating margins in 1997-98 was 9.76 per cent, which have come down to 7.1 per cent in1998-99. Infact on operating level, the profit is more or less at similar levels as that of last year.

What seems to have actually benfitted the company is lower net interest charge in 1998-99 compared to that of previous year. The net interest fell from Rs 7.47 crore to Rs 5.46 crore. One of the possible reasons could be due to short term need of funds out of the proceeds of the rights issue.

Even the effective tax rate rate is down from 31 per cent to 19 per cent- resulting in higher bottomline for the company. The lower tax rate has been due to depreciations benefits on the capex for new equipments purchased last year.

Now lower margins coupled with lower tax rate cannot push the bottomline every year. What is needed is a strong order book position. According to the company the order book position has fallen from Rs 850 crore in 1997-98 to Rs 800 crore as on March 31 1998-99.

But what can actually help the company is the sudden desire of the government to clear up most of infrtastructure projects.Today the government cleared, contracts for five road projects for four/six lanes on north-south and east-west corridors totaling 63 kms to National Highways Authority of India (NHAI). These projects, are worth Rs 200 crore and being the biggest equipment supplier for constructuring new roads, Gammon India Ltd would surely get part of the contracts.

Further on we have 20 odd fly-overs/ subways where the bidding process for construction is yet to begin. They include flyovers at Haji- Ali, Worli Naka, Siddhi Vinayak and the subway at Juhu airport. This spurt in construction activity would leave ample scope for the company to show a much higher earnings next year. But till the company actually gets these orders the scrip would not rise much more than presently traded value of Rs 115.

Pharma Exports

For the first time in the country exports of drug formulations have overshot bulk drug exports. According to data compiled by the Chemicals and Pharmaceuticals Export Promotion Council (Chemexcil)formulation exports have touched Rs 2,750 crore as against Rs 2,250 crore recorded by bulkdrugs. As a result of the poor performance of the bulk drugs segment, overall export growth has slowed down to 25 per cent in 1998-99 as compared to 33 per cent in the previous year.

Bulk drug segment has not only been hit by lower volume exports but also by lower prices in most of the products, specially the semi-synthetic penicillins. Most of the drugs that were affected are those in which India competes directly with China in the world market like ampicillin, amoxycillin, cephalosporins, among others. Exports of bulk has also been affected by anti-subsidy duties been imposed the European Union. Industry observers say that bulk drug export was also affected by the 'unwritten ban' imposed by the ministry of health in the second half of 1998 on exports of new drug molecules that are not registered in India.

However, not all bulk drugs export has been affected. Some of the newly launched drugs and particularly thosein the speciality segment have done exceeding well. A case in the point is the bulk drugs exported by Sun Pharma. The sector is likely to see robust growth after the removal of 'ban' on exports of new drug molecules such as sildenafil citrate.

As for the formulation segment, the growth rate is good for the pharmaceutical industry as a whole as more value is added to the goods before they are exported. Though this is a good sign, however, most of the formulation exported from India is in the generic form, in other words these are not exported under a brand name. This is not a very healthy sign as realisations are low in this segment. But building a brand requires very high expenditure in building a network, this can and is been done by most of the big pharmaceutical players.

While the figures are a cause of concern for the bulk drug producers, there is little that can be done as most of the products in which Indian companies operates are overcrowded. Unless companies get into manufacturing of new products,or add value by way of exporting formulations in branded form and establish a market, declining growth rate could continue. Establishing a market in the generic products is essential for Indian companies for growth specially after the patent regime.

Tailpiece

Inter-bank borrowings up to 15 days maturity are today shown as borrowings, while those exceeding 15 days are shown as deposits. All interbank borrowings could instead be shown as borrowings. This will facilitate easy calculation of M3, since under the present system, interbank deposit figures have to be removed while calculating M3.

EMCEE (with contributions from Manish Saxena, Shishir Asthana & Jayshree Bose)