The annual results from the company have to be viewed from the fact that the major chunk of its domestic market for fastners which comprises the heavy vehicles manufacturers, Telco and Ashok Leyland were reeling under a severe demand crunch. But the export thrust continued, contributing to 15 per cent of total sales. Export revenues improved handsomely by 23 per cent y-o-y. Therefore, though the commercial vehicles and passenger car sector recorded negative sales in the last financial year, SFL reported a topline growth of 5.5 per cent and a bottomline growth of 15 per cent.

The burst in SFLs performance came in the last quarter, in conjunction with the improvement in domesticproduction of commercial vehicles. Last quarter revenues improved by 15 per cent y-o-y, while the profit after tax practically doubled. The growth rates were in single digits for most of the earlier periods.

At present, the company supplies fastners (numerous varieties of which are required by automobile manufacturers) to all the leading Indian automobile companies, besides supplying to the international operations of global giants such as General Motors and Daimler Benz. In the current year, things should be relatively better since, the export offtake has been increasing.

Besides, SFL has also been chosen as a vendor to the Indica. Going by the last quarters performance, a pick-up in domestic auto production, particularly in the heavy vehicles sector, will provide a significant thrust to SFL's earnings in the current year.

Despite the slowdown, the stock still trades at lofty multiples. Based on the latest earnings figures, the price earnings multiple works out to 15 times, which is among the highestappended to Indian owned and managed companies. The stock has appreciated by 50 per cent in the last ten months from Rs 280 (which it touched at the height of the slowdown) to Rs 420 at present.

Nilkamal Plastics

In spite of a general slowdown in the industry, Nilkamal Plastics has recorded phenomenal results for the year 1998-99. Part of the reason for the good performance of the company is due to the fact that it has a diversified product portfolio. The company manufactures five main classes of goods -- furniture, crates, household goods, pallets and custom mouldings. The company is a market leader in almost all the sectors, with an established 'Nilkamal' brandname.

Nilkamal Plastics has benefited from the increasing demand of plastic products. Plastic products are rapidly replacing the traditional wooden and metallic furniture among other applications. The company can be given credit for creating a market for some of its products. Nilkamal started with manufacturing plastic crates for milkdairies spread all over the country.

Gaining experience from this product, the company has penetrated other industries like automobiles, bottling, brewing, engineering, electrical, electronics, food processing, pharmaceuticals and textiles.

For the year 1998-99, the company has recorded a sales growth of 48 per cent, with trunover increasing from Rs 139.43 crore to Rs 206.26 crore. Its bottomline during the period has increased from Rs 12.79 crore to Rs 22.19 crore, a jump of 73 per cent. The company has benefited from the depressed prices of its raw material, polypropylene and polyethylene, which has resulted in operating margin improving from 18.67 per cent to 20.14 per cent. Raw material constitutes around 80 per cent of the company's cost; Thus any fluctuation severely impacts the bottomline.

Though the company has benefited from higher volume growth, which was possible due to commissioning of its new units at Noida and Pondicherry, it had to factor in higher interest and depreciation charges.Nilkamal's good performance, to a large extent, can be attributed to the strong performance in the fourth quarter. More than 43 per cent of the turnover and 32 per cent of the bottomline has been the contribution of the fourth quarter.

Even though Nilkamal has a potential of high growth rate in the domestic market, it is setting up a unit in Sri Lanka through a subsidiary, to capitalise on the high potential in that country.

Though the high growth rate of the fourth quarter will be difficult to maintain, the company is likely to show robust growth in future. The biggest advantage Nilkamal has is that it has a strong presence in the rural market.

Further, it has multilocational units, which cuts down on costs substantially. A cause of worry for the company can be increasing polymer prices; However, with a dominant position in the market, the company can pass on the increases to its customers.

Aaron Chaze and Shishir Asthana