Reports say that ONGC is considering entering into LNG distribution and LPG marketing. Perhaps the failure to strike oil in two deep sea water wells may have caused a change in the strategic focus of the company, pushing them to move to other related business. Output from Bombay High is sure to decline and hence entering into downstream business is the only alternative left for the company to keep its earnings growth on track.

ONGC officials explain, however, that their move into downstream sector is part of a well thought out strategy, whereby they would like to become an integrated energy company, rather than a stand alone exploration and production (E&P) outfit. Globally all the companies in E&P business including Shell and Mobil are vertically integrated from exploration to marketing of products and even processing the products. Since there is no defined input/output ratio for the exploration business,as compared to either production or marketing business, revenues are better hedged if the company enters into downstream sectors.

IOC officials say that the entry of ONGC into marketing and distribution would not affect IOC revenues or their relations with ONGC. The same opinion is shared by ONGC, who say that initially they are looking at catering to bulk customers. In future they would like to set up their own distribution network, which would complement the one set up by other marketing companies such as IOC, HPCL, and BPCL. Bulk customers form only 4-5 per cent of the total supply and their venture would in no way upset the MoU signed with IOC.

HPCL officials feel that the entry of ONGC into marketing should not affect their bottomline. They feel that margins in LPG would continue to remain at the levels of Rs 600 to Rs 1,200 per tonne ( depending on the freight component) and the addition of new player should not bring down this margin drastically. LPG contributes 15-25 per cent of the pre-taxearnings of the refining companies and any loss of share or drop in margins can severely impact earnings. But the marketing companies point out that double digit growth of LPG and the scope of LPG to replace other fuels would see to it that an additional player would only help in building up the market. Data provided by the ministry also supports the argument that profitability in LPG business would not be affected by another player. Going by the figures provided by the Petroleum ministry, presently we have around 13 million wait-listed customers. This would require additional supply of 1.6 million tonnes per annum.

Output from new refineries would partially bridge the gap, but if ONGC enters the fray we would see the supply demand for LPG getting balanced and margins in the product would continue to remain constant.

However analysts point out that the reason for the entry of ONGC into marketing could be the agreement between private refineries and Public Sector Marketing companies, which has forced ONGCto venture into downstream sectors. Revenues of IOC, BPCL, HPCL would hardly be impacted as there supply would be fixed, but ONGC would have to find customers for its products. Hence ONGC feels it would be better to prepare for the deregulated environment now.

But others feel that the basic reason for entering into LPG marketing is to take advantage of the price distortion prevailing in LPG. LPG players currently have a fixed 12 per cent return on assets, zero per cent interest of deposits available from customers, cash incentives for bottling units as well as cylinders, all of which significantly add to the company's bottomline. Till the dismantling of APM,these price distortions would remain, and players would earn above normal profits from the business. In any case, oil and gas go together, and there is no reason why ONGC should not exploit its advantage in selling gas.

Unichem Laboratories

At a time when top pharmaceutical companies are reporting mediocre performances, Unichem Laboratories,among the top 20 on the ORG ranking, has posted appreciable results. The company for the first quarter of the current fiscal has recorded a 21.31 per cent growth in its turnover which increased from Rs 40.84 crore to Rs 49.55 crore. Its bottomline on the other hand has jumped from Rs 2.82 crore to Rs 3.97 crore, a growth of 41 per cent. Most importantly, the growth in bottomline has been achieved in spite of a drastic drop in contribution of other income to PBT from 41 per cent to 10 per cent, signifying operational growth. Further, the company has improved its operating margins from 12.57 per cent to 14.46 per cent in the first quarter of the current fiscal.

As per Unichem's company secretary, K Subbaraman, the excellent results were possible as there were very few products launches, in fact only two products were launched during the quarter. Subbaraman, adds that the first two quarters are normally the best as around 40 per cent of its turnover come from anti-infective segment. As incidence of diseases inthe summer and monsoon season is high demand for drugs in the anti-infective segment increases during these months.

In exports Unichem is mainly in the bulk market, with a turnover of Rs 2.25 crore in the first quarter, however, the company is expecting to increase its presence in the formulation business, for which it has already recruited key personnel. The first quarter results shows a marginal drop in the interest charges from Rs 1.86 crore to Rs 1.61 crore. This has been achieved as around Rs 6.8 crore of high cost debt (at 21 per cent from its erstwhile group company Unisearch, which was subsequently amalgamated with Unichem) has been replaced by debt carrying an interest charge of 14.5 per cent.

Unichem Laboratories has undergone some major restructuring, benefits of which are now visible. The company had announced its first VRS way back in 1992 and later in 1995 and 1997. The last one was on account of closure of its high cost manufacturing unit in Mumbai. Cost of this VRS has been written offwithin two years, while the earlier ones will be written off in a period of 15 years and 7 years. As a result of this, the extraordinary cost has shown a a drop from Rs 53.51 lakh to Rs 12.36 lakh during the first quarter of the current fiscal. Other income too has declined substantially from Rs 1.47 crore to Rs 0.46 crore. This was on account of non-payment of lease rentals by certain parties.

Unichem has a vast distribution and marketing network in the country, coupled with some strong brands. The distribution network of the company comprises of 35 distributors, 200 stockists and 80000 retail outlets. The company is represented in around 36 per cent of the total Pharma market, where it commands 6 per cent market share. Many of its brands enjoys top 5 brands status within the represented therapeutic groups. Unichem has 5 brands in its portfolio that are featuring in the top 250 brands in the Pharma market. With a well established network in the domestic market and presence in nearly 25 countries in theworld, Unichem is planning a string of new product launches in the near future. For the international market the company is not only planning the exports of formulations, but is planning to tap the generic formulation market with its own brand name. In the domestic market new products in the psychiatry and cardio-vascular segments are planned. Unichem is planning to increase its presence in the woman healthcare segment with a basket of products to be launched in the near future under this 'Foreva' division. Considering the cost cutting measures planned by the company as well as growth plans which will be helped by its state of the art Goa plant, the company is expected to report strong growth rates in the future.

With contributions from Manish Saxena and Shishir Asthana