| While other multinational players have been reporting sluggish sales in domestic markets, Aventis's marketing strategy has helped it to grow its net sales by 15.11 per cent in the December quarter. |
| Profit growth has also been aided by the company's other income rising 93.5 per cent to Rs 6 crore in Q4 CY04 "" this income stream has grown due to increased interest and dividend income. |
| The company has been focusing on expanding the proportion of its high-margin strategic brands like Allegra ( an anti-allergic medication) and Cardace (medication for hyper-tension and cardio-vascular segment) in its sales. |
| Its portfolio also includes medications like Avil and Soframycin that have become quasi-OTC brands, thereby not requiring substantial promotional expenses. |
| Also, a close alignment with its parent's portfolio has helped to ensure regular product launches in the domestic market "" Lantus, for the diabetes segment, is one example. |
| Regular product launches are an essential element to build sales momentum. As a result, operating profit grew 31.67 per cent to Rs 60.7 crore in Q4 CY04 and operating profit margins have also expanded 397 basis points to 30.64 per cent. |
| Going forward, the company is expected to play an expanded role in its parent's global operations, as well as launch products from its parent's portfolio. |
| The stock was up 2.29 per cent in Friday trade and currently trades at about times 18 estimated CY 05 earnings. The market seems to have already priced in the growth anticipated for CY 05. |
| Two-wheeler sales |
| Hero Honda has closed the financial year ended March 2005 with a unit sales growth of 26.6 per cent. While the volume growth for the year has been impressive, it's important to note that growth dipped to 15.6 per cent in the March quarter, from the over 30 per cent growth recorded in the nine months till December 2004. |
| In Bajaj Auto's case, growth in motorcycle sales picked up from 38.5 per cent in the nine month period ended December to 50.7 per cent in the March quarter. |
| Nevertheless, Bajaj's other divisions including scooters and three-wheelers underperformed, resulting in an overall volume growth of 20.2 per cent in FY05, lower than Hero Honda's growth for the year. |
| The silver lining for Bajaj Auto was that motorcycle sales increased to 79.4 per cent of total unit sales in FY05, compared to 67.4 per cent in FY04 and 60 per cent in FY03. |
| Motorcycles are more profitable than other two wheeler segments. Yet, with the share of three-wheelers declining in FY05, the company's profitability has taken a hit in FY05. |
| The story could well be different in FY06. Bajaj's impressive motorcycle sales growth is expected to continue, thanks mainly to the success of the 'CT 100' in the entry-level segment and the 'Discover' in the executive segment. |
| This could be bad news for Hero Honda, which derives most of its sales from the entry and executive segments. On the profitability front, things could be better relative to the previous fiscal with both players raising prices by about two per cent. |
| But the key earnings driver in FY06 would be volume growth, and Bajaj Auto, for now, is way ahead on this count. Hero Honda's marginal discount to Bajaj Auto (Hero Honda's FY06 PE is about 0.9 times Bajaj's), therefore, is understandable. |
| Supply chain consolidation |
| The recent news that Provogue plans a Rs 70 crore IPO is interesting in the context of the ongoing changes in the Indian retail sector. There has been much venture capital and private equity interest in the Provogue brand. |
| However, what might be more interesting to watch are the moves that are anticipated by existing large format players like Pantaloon Retail India Ltd and Piramyd Retailing and Merchandising Ltd to take a stake in players such as Provogue. |
| The trend is clearly towards acquiring brands and players that can enable a supplier and vendor level consolidation. |
| So these players will soon be on the prowl to broad-base customer segments, increase the range of offerings for their target audience, and enable a robust business model that is based on scale and market penetration. |
| Acquiring stakes in brands such as Provogue would do just that especially for players like Pantaloon, which has already acquired stakes in Indus League, Planet Sports, Galaxy Entertainment. |
| Provogue's sales today are Rs 106 crore. It has a net profit of Rs 7.75 crore. |
| It has the capacity to make about 2,000 trousers a day, besides sourcing other garment accessories and offering these under its brand name at 22 Provogue studios and other major outlets that stock multiple brands like the Piramyd Megastore currently. |
| A stake in players like Provogue (with high capacities and a wide range of branded products) would help aggregators like Pantaloon and Piramyd gain access to a wider range of brands and suppliers. |
| This can help them manage costs and volumes effectively, besides offering consumers wider variety. It would also mark a trend where the Indian retailing industry is maturing, and large players are consolidating to gain supplier and vendor power. |
| With contributions from Mobis Philipose, Vivek Y Kelkar and Amriteshwar Mathur |
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