In terms of installed cement capacity, Gujarat Ambuja is the fifth largest company in India. However, its OPM of 42 per cent in the first quarter of the current financial year will be more than the cumulative OPM of the first three cement companies - L&T, ACC and Grasim. The 1:1 bonus is a clear indication that the company will be able to maintain EPS even on diluted capital. The decision of the company to retire debt worth Rs 247 crore in 1998-99 is reflected in the Rs 5.4 crore lower interest in the first quarter itself.

Again, it is the cost reduction that has resulted in improved margins though better prices in Gujarat and Mumbai also helped marginally. One only has to take the growth rate in despatches for the industry and compare it with Ambuja's 3 per cent volume growth (July-September) to realise how cost competitive the company is. In fact, on comparing first quarter 1997-98 performance with the first quarter of the current year, one finds that net sales has gone up by Rs 5.1 crore and PBIDT has gone up by Rs 3.83 crore.

According to the management, power consumption per tonne of cement produced will come down to 90 units by the end of the financial year compared to 96 units in the previous year. Though this will not be able to offset the hike in fuel oil prices, it will cushion the impact to a marginal extent. For the fuel oil requirements, the first three consignments were on fixed price and now, the price is based on the average of fortnightly prices. The fuel is imported for the DG sets at the Gujarat unit. At the Himachal Pradesh unit, DG sets are mainly stand by. International coal prices, though not in line with fuel prices, are also moving up. However, improved productivity will cushion the impact of higher fuel prices.

The basic advantage for Ambuja is Mumbai which accounts for 13 per cent of its market. Prices in October will be higher by Rs 20 per bag compared to prices in September as it has managed higher volumes. Normally, the first quarter is the worst quarter for the company.

Polaris Software

A Rs 9.5 crore one-time interest income has enabled Polaris Software to almost treble its net profit for the quarter ending September. The company's bottomline has grown from Rs 4.89 crore in the quarter ending June to Rs 12.14 crore as compared to the preceding quarter. Net margin has improved from 18.5 per cent to 27.75 per cent. However, the company's impressive performance is not merely the function of extraordinary income.

Polaris has recorded a 29.5 per cent increase in income from operations to Rs 34.17 crore and a 34.8 per cent rise in operating profit to Rs 26.47 crore. Operating margin has improved from 21.7 per cent to 22.5 per cent. Though the company's profitability is low as compared to software majors Infosys and Satyam, the fact that its margins have been improving is a good sign. The company is currently building a software development centre near Chennai to house 850 professionals and once the facility is commissioned, its sales and profits can be expected to grow at a quicker pace.

One reason for the company's lower margins is that it has been writing-off product development expenses during the period these are incurred. In the quarter ended September, Rs 1.06 crore were written-off. These expenses are incurred for the development of new businesses specially for test marketing products. The expenses incurred on the development of its new products, Super Store XS, Nterprise, Inspire and Web-Hotline are likely to yield results over the next two-three years. The success of these products will ensure higher margins for the company in the following quarters.

The company has been focussing on building knowledge and competencies around domains and new technologies. This approach has insulated it from the Y2K black-out effect. As a result, while most ther companies are currently attempting to make the transition from Y2K projects to e-commerce projects, Polaris is already on path to take advantage of the emerging opportunities. Yet another factor that distinguishes it from other software companies is that North America accounts for less than 60 per cent of its revenues. For Infosys and Satyam, the contribution from North America is over 75 per cent. Polaris is, therefore, less prone to the risk arising out of a possible slowdown in the region.

Hero Honda

The Hero Honda Motors scrip has been among the most favoured stocks in 1998-99. A fact which is clearly reflected in the northward spiral of the scrip from the Rs 350 levels in January 1998 to a recent all time high of Rs 1549 in July. In the process, it has registered a 343 per cent gain, while outperforming the BSE Sensex by miles. Interestingly though the gain in stock value reflects a recognition of the company's fundamentals, which are visible in ample abundance for the second quarter ended September 1999.

Hero Honda was undoubtedly the star performer in the two wheeler industry. That the sales of 3.38 lakh units (a jump of 37.23 per cent), has helped the company improve its market shares from 37 per cent last year to 43 per cent, also re-iterates the company's growth story. Importantly, the growth in unit sales outstrips the industry growth by miles, with TVS Suzuki coming a distant second.

As far as the financial performance for the quarter ended September 1999, is concerned - it is volume growth which has buoyed the bottomline. Clearly volumes at Hero Honda have been aided by the capacity expansion of the Gurgaon facility, which helped drive revenues. Another factor that has helped Hero Honda, has been the swing in two wheeler demand from scooters to motorcycles. A fact which is clearly reflected in the 43.28 per cent jump in motorcycle sales, which has fueled revenues to Rs 550.21 crore (Rs 386.70 crore last year).

Stringent cost control has also helped buoy the operating margins which improved from 11.90 per cent to 13.04 per cent. Lower interest costs have further boosted the net profits which jumped 43.89 per cent to Rs 42.88 crore. This despite an increase in the effective tax rate to 31.32 per cent, augurs well for the company.

Furthermore, the company has also decided to keep out of the scooter market for the time being and concentrate on the motorcycle segment. Which interestingly is in sharp contrast to its major competitor namely - TVS Suzuki. Furthermore the name of the company has become synonymous with fuel efficiency and low emission level and this, along with, the fact that the products are designed for indian market and driving conditions gives the company a distinct competetive advantage. Laslty, the huge success of its latest market offering namely the Honda CBZ - which is constrained only due to inhouse production scheduling, also augurs well for the company in the future.

Emcee (with contributions from Urmik Chhaya, Sarad Saraf & Percy Dubash)