The company is a leading player in the crop protection business and manufactures a number of products in the insecticides, pesticides, herbicides and fungicides segment. Around 80 per cent of the topline is contributed by this business while the rest comes from the environment health business.

Although the vast population, coupled with limited arable land, provides a lot of scope for crop protection business, still it is cyclical as the success of agriculture operations is dependent on the rain gods. Also, the export component in the total turnover of the company is a meagre 8 per cent. This overdependence on the Indian market has proved to be very expensive for the company.

The company has taken steps to increase its market reach by tying up with GSFC which has a wide distribution network in Gujarat. It is also holding demonstrations of its products in 100-200 farms across the country to increase their usage.

The operating cost of the company has not fallen by the same extent as the topline and stood at Rs 51 crore, down 5 per cent from Rs 53 crore in Q299. This has put a pressure on the operating profit margin which was down from 17 per cent to 11.5 per cent. The interest cost has also gone up by 22 per cent to Rs 3 crore due to liberal credit policy adopted by the company to woo customers. The net profit, as a result of higher costs and negative sales growth, registered a fall of 69 per cent to Rs 2.3 crore. The company needs to focus on the export market as well as diversify into the local market across various crops to reduce its vulnerability to the acts of nature.

Devolvement - RBI
There has been yet another devolvement on the RBI. The 88.6 per cent devolvement of the Rs 4,000-crore, four-year paper on the RBI on Tuesday is the fifth such devolvement on it in the present fiscal. This has been the case despite enough liquidity in the system.

The RBI had done a wonderful job last year when it managed the huge government borrowing programme through private placements without much pressure on the interest rates. This was despite the fact that the government as always had overshot the budgeted figures. However, to presume that the central bank can get away with this every time without pushing up the interest rates, will be naive.

The preconditions of such a policy wherein the RBI can rescue the government with its huge borrowings are a stable exchange rate and low inflation.

Inflation though, reigning at around 5.90 per cent for the last couple of weeks, is low. However, with the oil pool deficit rising, they cannot remain lower for a long time. Also, the other prerequisite ie, the exchange rate has been under severe pressure with the rupee depreciating by over 2 per cent in the last two months.

The earlier devolvements were apparent for two reasons according to analysts - first, the market was looking for a higher than prevailing market yields which the RBI was unwilling to go for due to its objective of keeping the interest rates low. Secondly, there were inklings of the medium and the long-term interest rates firming up. Even the secondary market yield was beginning to give inconsistent signals. The government could have taken the private placement route like in the past but that would have infused liquidity in the system. A public auction, on the other hand, has the advantage of withdrawing liquidity but, the pressure on the interest rates is lesser.

This time around, however, despite its stand that it does not have a "pegged value of the rupee," the bank had to intervene directly to defend the rupee going below Rs 45 a dollar. The timing, of the rate hike, though is a bit unfortunate.

According to HDFC Bank chief treasurer Sudhir Joshi, "It is hardly a time when one expects a hike in the interest rates especially when the economy is showing signs of recovery in the second quarter." The fact, however, remains that at the moment the central bank is more likely to defend the exchange rate after the run on the rupee, rather than caring for its interest rate objective.

Now, after the RBI's tinkering with the CRR and bank rate, further devolvements can be expected in the future. This time, however, it will be with an objective to infuse liquidity in the system which has been squeezed due to the rate hikes. Only, this time it would be at the cost of the interest rates.

Tata Steel
It was almost a certainty that the Tata Steel's results for the quarter ended June 2000 will be better than the corresponding period in the previous year. As the steel prices have improved substantially since the beginning of this calender year, the optimism was obvious. But the rate of improvement in bottomline is pleasantly surprising. In fact, the contribution of volume growth to the topline outperformed that of price. The net profit after extraordinary items has shot up by 309 per cent to Rs 110.52 crore.

The total production of saleable steel was up by 11.58 per cent to 8,34,906 tonnes. Sales volume at 7,42,224 tonnes, was more than the output rise, with 13.03 per cent growth. Due to that, the inventory level registered a fall of 20 per cent at 2,04,373 tonnes. Income from operations went up by 21.08 per cent at Rs 1,728.27 crore. The increased topline can be bifurcated as 38.20 per cent price hikes and an impressive 61.80 per cent volume growth. The overseas demand was good and that enabled the company to achieve 40.4 per cent more export revenues at Rs 177.42 crore. The operational profits jumped up by 51.38 per cent to Rs 357.74 crore, thanks largely to operating profit margin of 20.7 per cent as compared to 16.56 per cent in the previous year.

The interest cost was more by 20 per cent to Rs 103.11 crore. The company plans to borrow around Rs 800 crore from the financial institutions to substitute the high-cost debt and acquire existing steel plants.

Depreciation was moderately up by 8 per cent to Rs 112.15 crore, which is expected to increase after commissioning of the commercial production of CR mills at Jamshedpur. Even after the higher extraordinary expenditure of VRS and taxes, the net profit margin (NPM) has tripled to 5.87 per cent.

With the forecast showing that the world steel consumption is rising by a total of 52 million tonnes during a two year period, the HR coil prices are not expected to fall below $270 per tonne. The company will also reap the benefits of higher value addition in the form of CR production, once the trial production is successful at the Jamshedpur mill. According to the management, the focus will be shifted to the acquisitions and mergers, which can turn out to be cheaper, instead of setting up greenfield projects. The move to sell off the infotech division will ensure sufficient funds. All this augurs well for the near future.

KSESH (with contributions from Prashant Kothari, Sachchidanand Shukla and Manish Joshi)