Hairline Growth

Updated: Apr 25 2002, 05:30am hrs
Reliance Industries (RIL) has come out with a reasonably good performance during the fourth quarter to March 2002. The performance needs to be viewed against the backdrop of petrochemical industry plagued by high crude oil prices, weak rupee leading to high cost of feedstock imports and supply glut resulting in flat product prices.

Although total sales, including trading sales, was up 3.1 per cent to Rs 6,642 crore, manufacturing sales slipped 3.9 per cent to Rs 6,195 crore. Despite a surge in naphtha prices to $220 per tonne during the quarter to March 2002, the major raw material for a petrochemical company, the company could keep its OPM intact at 19 per cent. It is quite likely that the company might have used the naphtha procured during the quarter to December 2001 when naphtha prices were around $170 per tonne.

Apparently, an 11.5 per cent decline in profit after tax may give a deceptive impression that the company has not delivered on bottomline. Yet, if the bottomline of the corresponding quarter of the previous year is restated to exclude the foreign exchange gain on repatriation of overseas proceeds to the extent of Rs 98 crore, then it looks pinker. After taking the forex gain into account, net profit after tax shows an increase of 1.7 per cent to Rs 672 crore. The marginal growth in net profit can be attributed to a substantially lower ‘other expenditure’ of Rs 813 crore (Rs 898 crore) and a near 31 per cent fall in interest outgo at Rs 201 crore. However, a drop in other income to Rs 143 crore (Rs 178 crore) partially nullified the gains from lower cost.

Industry experts are expecting the petrochemical cycle to turn for the better. RIL has every reason to be optimistic as far as its polymers business is concerned. Although the glut in polymers market is expected to continue in the near term, the demand-supply mismatch may be eliminated in polyvinyl chloride, polypropylene, polyethylene etc. if they maintain the current double digit growth rate in demand. The increase in demand is expected from new user industries such as telecom, packaging and food. The company has also been focusing on speciality products with higher price realisations. Even if petrochemical prices firm up, import prices of feedstock will have to soften for further improvement in RIL’s performance, as the company is yet to make significant gains from oil and gas business.

Satyam Computer
Satyam Computer Services (SCS), a diverse end-to-end IT solutions provider, reported better performance during the quarter to March 2002. In spite of a substantial rise in turnover, up 25.6 per cent to Rs 482.6 crore, the company’s net profit contracted by 33 per cent to Rs 74.4 crore as it made a provision of Rs 40.7 crore for its loss making subsidiary. For the year to March 2002, net profit fell 35 per cent to Rs 316.2 crore, on a turnover of Rs 1803.1 crore, up 45 per cent.

The company’s strategy in strengthening its relationships with existing clients by offering them enterprise solutions helped it to withstand increasing pressure on topline. Its income from software services grew by 42 per cent to Rs 1731.9 for FY02. In Q4, company added 24 new clients that resulted in increased volume. However, increasing pressure on the billing rates and higher share of offshore revenue in total revenue resulted in slower growth of 18.4 per cent in software services to Rs 457.6.

SCS added about 440 people to its employee strength. This has resulted in 49 per cent jump in staff cost to Rs 229.2 crore. Also, because of the merger of its marketing subsidiaries, effective from Q4, and absorption of Satyam Infoway’s e-business, its operating expenses grew faster that pressured its operating margins. Hence, its operating profit declined by 2.8 per cent to Rs 14 crore, while OPM fell to 30.6 per cent (37.3 per cent). SCS is in the process of forming alliances with the leading solution providers in the overseas market. This is expected to translate in increased revenue streams in the current fiscal year.

It has already launched a subsidiary in collaboration with Carnegie Mellon University to develop the business process outsourcing (BPO) model. With strong demand for ERP, nearly 17 per cent of revenues from package implementation and easing of pricing pressure, the company should do well in the FY03.

Manish Joshi & Laxmikant Khanvilkar