For an education & training company, a 53 per cent rise in turnover in the quarter ended June 1999 is nothing short of outstanding. More so if it comes from a relatively small player like Pentafour Communications. While a small base may have helped the company post an impressive growth rate, it should also be recognised that smaller players find it all the more difficult to take on established giants. Industry leader NIIT, which is ten times the size of Pentafour Communications (in terms of revenues earned) clocked a sales growth of 25 per cent. That growth is not a function of size alone is clearly borne out by the fact that Aptech, which is much smaller than NIIT witnessed a smaller rise in its turnover. A plausible explanation is perhaps that NIIT has a larger exposure to software development activities than Aptech and Pentafour Communications gets an ever higher percentage of its earnings from non-E&T activities.

Yet another factor that aids the company's growth is thatit operates in a few niche areas and does not target a mass education market like NIIT and Aptech do. It was the first to offer a career-oriented training programme in Mechanical CAD and GIS. Process control software applications and embedded software applications are two other niches that the company has identified. Being a niche-player, it is able to command higher realisations per student which in turn adds to both its topline and bottomline. However, the strategy also limits the company's future growth prospects and it would come as no surprise if it begins to expand its product offerings to reach a larger cross-section of people. Once that happens, it would be logical to expect growth rates to mellow and fall in line with other industry majors. Besides, as the larger players increase their presence in the niches currently served by the company, per student realisations can only be expected to fall.

Pentafour Communications' system integration division continues to do well and it has identified on-siteconsultation in the field of geometrics and geomatics as a new growth area. The company has already got orders from international giants like Eaton Corp, Ford Motor, Siemens and the Singapore Technologies Group. In CAD/CAM services, it has formidable competition from Rolta India but neither of the two companies feel the heat owing to a large market size. Pentafour Communications perceives marketing and implementation of the branch automation software "Pentabank" as an important activity. But it is only a matter of time before branch banking gives way to integrated banking. Once that happens, "Pentabank" would cease to be a good opportunity unless of course the product too undergoes a change to suit changing needs. Though the company has managed to chart a good growth path for itself so far it would be a real challenge to maintain this without sacrificing margins.

Sun Pharma

The 69.4 per cent rise in Sun Pharma's bottomline has come as a pleasant surprise. Net profit for the quarter was Rs 20.03crore and the bottomline growth has been supported by a 47 per cent growth in sales to Rs 102.93 crore. An important feature of the first quarter results is that unlike in the past, the company's performance in the domestic market has improved substantially. Though bulk drug sales have improved by 82.73 per cent to Rs 14.71 crore, more importantly formulations have shown a sharp increase of 50.23 per cent. One would have thought that the increase in sales is mainly due to revenues from Milmet (eye-care division acquired by Sun Pharma) and brands acquired by Natco Pharma. But this is not the case. Their contribution to the turnover has been marginal and it has been the company's own brands that have driven the growth in turnover. Tamil Nadu Dadha's product has also not shown much improvement. The company intends to increase marketing efforts in these products.

The company has increased its prescription share with psychiatrists and neurologists where Sun Pharma continues to be rated number one by specialistcustomers. With two major customer groups, cardiologists and gastroenterologists, the company reached the third rank. It is now working on improving its ratings with new customer groups such as orthopaedics and gynaecologists.

Another important feature of the results has been that the company has shown a sharp improvement in its operating margins, which have increased from 16.73 per cent to 24 per cent. This as the company's spokesperson has said isn ot due to reduction in raw material prices but better logistics in raw material procurement and inventory control. In other words the changes are long term in nature.

In the exports market, however, the company has not performed as well. Bulk exports however, has improved by 30 per cent from Rs 8.47 crore to Rs 11.01 crore, formulation exports have taken a beating, declining by 30 per cent from Rs 3.58 crore to Rs 2.50 crore. Sun Pharma's exports to Russia remained poor, with very few new orders coming their way. This has been a consicous effort by thecompany. Further, exports were also affected due to aggressive selling in March 1999. As a result share of exports to turnover has declined from 17.26 per cent to 13.12 per cent.

In both sales and net profit of its subsidiary company, Sun Pharmaceutical Exports has been lower as compared to previous year. This was mainly because of lower sales in the domestic market, which was due to lower sales being done on advance licence basis. Exports of formulation and bulk drugs has improved by 46 per cent and 162 per cent respectively.

Coming back to Sun Pharma, its other income has come down substantially as the company has invested all its free cash in its business. Further, interest has been higher too on account of payment towards the preferential issue. A troubling factor however, is that the company has shown a sharp increase in provision towards tax, which has increased from Rs 0.34 crore to Rs 1.69 crore (Rs 2.22 crore in the previous year). This has been because tax exemption of five years on one of itsunits at Silvassa has expired. The company is however, shifting production of some of its product from this unit to a new one in the vicinity which will further extend the tax benefit by five year. This shifting will however, take some time to complete.

However, with the sharp growth in the domestic formulation business and consolidation of its market share in the high realisation market the company is expected to perform well in future. Further, brands of Milmet and Natco brands will also start contributing to the company's performance in future. Sun Pharma has already launched seven brands in the first quarter of the current fiscal in the antihypertensive, antibacterial and movement disorder segments. Continuing its agressive marketing startegy, the company has launched three brands in July 1999 in the antihypertensive. As these brands are being launched in an established segment of the company, contribution will start coming in soon.

For the long term the company has made heavy investment in drugdicovery projects in three areas through its research centre SPARC. Though output from this will take time, the important point is that the company has realised the need for research.

With contributions from Sarad Saraf & Shishir Asthana