Ashok Leyland has completed a triumphant return to the red at the net level, after almost two years in the wilderness. Reflecting this is the net profit of Rs 1.97 crore for the six months ended September 1999, compared to a net loss of Rs 36.73 crore last year. The buoyant bottomline is thanks largely to a strong second quarter performance, wherein net profits of Rs 18.19 crore, have helped wipe out the first quarter losses of Rs 16.22 crore. Readers might remember that the truck major had managed to turn in cash profits of Rs 3.04 crore in the first quarter.

However, this performance holds no surprises, especially when one considers that sales of medium and heavy commercial vehicles have posted a very impressive growth of 79.6 per cent in the first half of the current fiscal. This, analysts state, is a direct play on signs of a growing economic recovery. Thus, the two obvious players to have benefited immensely from this resurgent trend in offtakes would have to be Telco and Ashok Leyland.

Interestingly, Leyland's results reveal that beyond the 29 per cent volume growth, which is responsible for the 27.27 per cent jump in revenues to Rs 1,092.88 crore for the six months ended September 1999, it is prudent working capital management and stringent cost controls, that have also helped.

Reiterating this are the buoyant operating margins, which have actually improved from 5.86 per cent to 7.4 per cent. This aside, the truck major's strategy to retire a part of its debt burden also appears to have paid dividends. In fact, interest costs for the half year are down 30.99 per cent from Rs 56.91 crore to Rs 39.27 crore. Readers might remember that Ashok Leyland, had announced the sale of its diesel engine manufacturing plant to IVECO for a consideration of Rs 226 crore, proceeds from which were expected to be utilised for just this purpose.

More importantly, the results seem to justify the northward spiral of the stock from the Rs 50 levels in May to the current levels of Rs 135. Furthermore, with Telco diversifying into the highly competitive passenger car segment, Ashok Leyland is now the only automotive major focussed solely on the commercial vehicle segment. Thus any investor who wants an exposure to the commercial vehicle sector (which has now recorded a positive growth trend for the tenth consecutive month since December 1998), will surely settle on the Ashok Leyland scrip.

Ranbaxy Laboratories

Ranbaxy Laboratories has recorded poor performance for the third quarter of the current fiscal. Thanks only to the down payment of $10 million, (Rs 43.5 crore) it received from Bayer AG, the company has managed a profit growth of 54.56 per cent from Rs 50.4 crore to Rs 77.9 crore. But for this, the company would have posted a drop of 13.5 per cent at the PBT level.

The company's problem has been mainly in the domestic market. Turnover in the domestic market has plummeted from Rs 258.3 crore to Rs 216.3 crore. The saving grace was a growth in export sales, which improved from Rs 158 crore to Rs 193.4 crore. However, this could not prevent total sales of the company from dropping to Rs 409.7 crore from Rs 416.3 crore.

It may be noted that export sales in the previous year had been affected by problems in the CIS. Though sales in that area continue to be affected, Ranbaxy has to some extent benefited from higher offtakes from the south east Asian countries and China. Bouyed by these successes abroad, the company's management is contemplating increasing investments overseas, specially in the US and UK markets.

Exports are likely to increase as Ranbaxy is expected to capitalise on sales of ranitidine in the US, which is expected to get off-patent in the current quarter. However, the drop in domestic sales is a cause for worry. The company had warned about this sluggishness in its first half results when dosage forms recorded a growth of 20 per cent.

A point worth noting is that during the period June-September 1998-99 the company had shown a sharp jump in domestic turnover from Rs 170.3 crore in the previous quarter to Rs 258.3 crore. Domestic sales fell in line from next quarter onwards. Thus, if a comparision is made between the recently announced three months figures with that of the previous year there is definitely a downfall. However, when compared with the previous quarter (domestic sales Rs 199.5 crore) the company has managed a positive growth. A clearer picture will come only after the looking at the company's performance in the current year.

Madras Cements

As was expected, Madras Cements has posted excellent second quarter results. However, the company is not willing to disclose income from wind mills - which goes straight to the bottomline. Dispatches in the second quarter were lower compared to the first but prices were robust. Cost per tonne in the second quarter was Rs 132 per tonne higher at Rs 1,298 but prices more than compensated for this. Rising costs is, nevertheless, a cause for concern. More so, since this cannot be attributed to high power consumption per tonne of cement produced. At the Alathiyur unit, power consumption is just 65 units and at RR Nagar and Jayanthipuram, it is in the range of 86-88 units. Also, of the 1.354 million tonne produced, PPC (which yields higher margins) accounts for 1.1 million tonne.

However, what is more important for forward-looking investors, is the expected third quarter performance. In 1998-99, q3 for the cement companies in South was disaster due to extended monsoon and lower prices. As on date, cement prices in South have shown no sign of decline. In AP, prices are ruling at Rs 145-150 per bag and in TN and Kerala in the range of Rs 175-180 per bag. For the period MCL posted PAT of Rs 1.53 crore and income from wind mill of Rs 2.37 crore despite Alathiyur Unit consuming just 75 units of power (per tonne of cement produced) and 45 per cent of the production being low cost PPC. All the indicators clearly point to a substantially improved third quarter performance - on a y-o-y basis.

At 40 per cent (36 per cent), the OPM in the second quarter of the current year is highest in the last six quarters and unwillingness of the company to dislcose wind mill income leads one to believe that it is a significant contributor. One only has to compare the PAT for the first half of 1999-2000 (Rs 42.40 crore against Rs 39.81 crore in the first half of 1998-99) with PAT for 1998-99 (Rs 39.92 crore) to realise the growth in PAT y-o-y due to far better prices. The equity, of course will not be diluted and the third quarter will reflect better contribution from the Alathiyur unit capacity upgradation-0.2 mt which considering the capacity of the company will have more than marginal impact.

Emcee (with contributions from Percy Dubash, Shishir Asthana & Urmik Chhaya)