The proposal to consolidate Zee Telefilms' operations by the Subash Chandra led Zee group, should come as no surprise. Especially, since the buyout of Star TV's 50 per cent stake in the three companies namely - Asia Today, Patco and Siticable, has always been part of the Indian media mogul's larger vision to consolidate more of the lucrative parts of his satellite and cable television business into the listed entity. This is exactly what Zee has managed to achieve in one swoop with the buyout. In the earlier set-up, Zee Telefilms used to produce software programming and market advertising space on its channels like Zee Tv, Zee India, Zee Cinema and lately, the regional channels. Zee aside the other company - Patco was in the area of software production and supplies, while Siticable looked after the tertiary ground level activities of cable distribution networks.

However, analysts state that due to the Indian government's ban on direct satellite link-ups by domestic companies, Chandrawas forced to set up a Hong Kong-based joint venture with News Corporation's Star TV unit called Asia Today to handle broadcasting. Importantly, under the existing contracts, Asia Today, purchases programming from Zee Telefilms at a fixed mark-up of 15 per cent over costs, leaving the joint venture with the bulk of advertising revenue. This, according to critics, meant that the best part of the business remained outside the listed entity. However, now as a result of the consolidation Zee will hold 100 per cent stake in each of the above named companies giving it a presence in every leg of the Cable and Satellite TV business right from programming, space selling, cable TV to broadcasting. Zee, incidentally had reported a 41 per cent growth in profits for the year ended March 31, 1999, on a topline growth of 29 per cent. However, with the injection of these new media assets of ATL, Patco and Siticable analysts predict an average net profit growth of 35 per cent a year for the next three years. This will beaided to an extent by revenues from the new regional channels, the four million cable subscriber base and the newly obtained national internet-service license. Not to mention a broadcasting footprint reaching an estimated 22 million homes in over 40 countries. All of which makes the $ 297 or Rs 1,300 crore payout for the consolidation seem worthwhile. This aside the merger with Zee Multimedia should then see Zee emerge as a global media conglomerate with diversified business interests in broadcasting, cable distribution, the internet and film production. All of this should also keep the Zee stock moving steadily northwards. However for Subash Chandra, the proposed consolidation will only be a mere acknowledgement of his vision.

Colgate Palmolive

In spite of the impact on profitability Colgate Palmolive (India) has, in recent times, sustained its new product momentum. It has also maintained a high level of investments in strategic infrastructure, marketing and brand building. This aggressive stance,investors might remember, was thrust upon Colgate due to the erosion of important market share in favour of its competitor, HLL. The battle between the two multinational giants is far from over in the oral care segment. Colgate appears to be regaining some important lost ground, which is good news indeed. A fact reflected in the 0.5 per cent increase in market share within the toothpaste segment to 52 per cent and a 1 per cent increase in the toothpowder segment to 46.3 per cent. Although, these figures appear absolutely insignificant by themselves, one statistic that puts the entire issue into perspective is the fact that the 6 per cent drop in market share suffered last year by Colgate had roughly translated into a consumption shift from Colgate to HLL by almost 3.9 million users. But perhaps even more important for the future could be Colgate's plans to focus on the rural market. News reports suggest that the company is planning to increase volumes by launching its products in the rural markets at lowerprices and small packages. This incidentally is also path taken by HLL via its "Operation Bharat", as there is no denying the underlying buying potential of the rural markets if tapped properly. Emphasising this is the fact that growth in the dental care segment is around 3-4 per cent in the urban market and 9-10 per cent in the rural market. However, there is no denying that penetration levels are very low in India and that the scope for growth in the industry is huge. Especially, as the consumption is very low (0.75 gm per capita) when compared to the consumption in other developed nations. Thus, all that Colgate now needs to do is take an aggressive approach towards creating a hard sell for its products and also make investments in marketing and new product launches. As such steps are bound to yield positive results and would also be favoured by the market. But whatever Colgate does manage to achieve in the interim, the fact that it will only be reducing HLL's inroads into its own market share remains.That Colgate lost this share due to complacency in the first place does not say much for the company's proactiveness to market demand.

Essel Packaging

For the last four trading sessions, the Essel Packaging stock has been hitting the upper end of the circuit filter. What is impressive is that at Rs 641.25 (the closing price on Friday), the stock has doubled after touching an all-time high of Rs 318 (adjusted for rights).

The trend in the stock suggests that the peak is not near. Re-rating of the stock can not be the reason for the price movement in last four trading sessions. It is well known that the company is the second largest laminated tube manufacturer in the world, is the sole supplier to Colgate and enjoys a market share of over 80 per cent in laminated tubes and a practical monopoly in the high margin seamless tubes in India. The fact that conversion to seamless tubes particularly by OTC segment of the pharmaceuticals industry will benefit Essel the most (as no other player is integratedand has more than 25 percent of Essel's capacity) is also well known. The spurt in prices has more to do with its leadership position in the industry. An interesting parallel can be drawn with SBI. It is the largest bank in India and enjoys a 50 per cent higher discounting than the second largest public sector bank. In next 18 months, Essel will be the largest laminated tube company in the world and in any segment, the leader gets the highest P/E. The advantage for Essel is that the only other listed laminated tube company is not a serious competitor because of its high equity:capacity ratio. The other factor in favour of Essel is its wholly owned Chinese subsidiary. The China market is 3 times the size of Indian market and going by its current performance, the Chinese operations of the company should equal the size of its Indian operations in a few years. In the immediate future, the second quarter performance of the company will be excellent for three reasons. One, according to the management, the volumesin the second quarter will be at least as good as in the first quarter. Second, in the first quarter, Essel had taken a one-time expenditure equivalent to 1.5 per cent of sales. Three, in the second quarter of the last year, he cosmetics segment (seamless tubes) was virtually dead with Ponds not buying at all compared to the previous year and cosmetics exports to Russia had come to the halt. This year, the market is no longer declining. Any change in the product mix (increase in share of seamless tubes) will result in improved margins and volume growth. The relationship between the topline and bottomline growth is already demonstrated in the first quarter. It is not the time to get out of the stock.

Emcee (with contributions from Percy Dubash & Urmik Chhaya)