Rumours of Vashisti Detergent's merger with its parent have once again gained strength in the market and has driven the stock northwards. These rumours have been doing the rounds for quite some time now, but the management has denied these sort of rumours in the past. Keeping in line with HLL's management practices, bringing Vashisti may well be brought under its fold, once the FMCG major acquires a 51 per cent stake in the company. A merger with HLL will only strengthen Vashisti's shareholder returns.

Apart from these rumours, the stock looks ripe for substantial appreciation on the back of exceptional growth in business and earnings. With a strong parentage, the company isall set to tread the high growth path. The scrip has given a breakout after a long time and has reached around the Rs 70-level. There has been a marked improvement in the trading volumes as well.

The FMCG leader, Hindustan Lever, holds close to 33 per cent stake in Vashisti Detergents which manufactures toilet soaps and detergent powders and bars. After incurring losses at the net level until 1996-97, Vashisti turned the corner in 1997-98 and has been improving its financial performance since then. Against a net loss of Rs 6.06 crore in 1996-97, the company managed a net profit of Rs 1.82 crore in 1997-98 and further to Rs 5 crore in 1998-99.

The growth in bottomline has been on the back of an improvement in turnover. In 1998-99, Vashisti managed a 17 per cent growth in sales to Rs 182.38 crore. The company retired short-term debt resulting in interest cost saving, debottlenecking operations and enhancing energy efficiencies. This has resulted in improved operating profit margins. Unlike other FMCGcompanies, Vashisti does not sell under its own brand name and it supplies major detergents and soaps to HLL.

The company has entered into a long-term contract with HLL, whereby the latter would lift the company's output at an agreed price. This lends stability to Vashisti's earnings stream. It protects it from competitive market. The price escalation clause provides stability to its earnings. The company posted a 42 per cent increase in turnover in 1998-99 compared to the previous year. Volumes at 79374 tonnes recorded a growth of 39 per cent. The improvement in sales volumes and turnover has been achieved through sustained efforts to improve productivity and operating efficiencies.

The company continues to focus on cost reduction, thereby yielding higher margins. Reduction in interest costs has resulted in a higher profit before tax of Rs 5 crore as against a profit of Rs 1.82 crore in the previous year.

During the year, all the plants achieved significantly higher capacity utilisation. The threemain plants for toilet soaps, detergent bars and detergent powders have fully stabilised. The Sulphonation plant has been the area of focus for the company. This plant is expected to contribute to the profitability of the company in the coming year and could result in higher profitability.