Durables explosion

Listed companies are unlikely to benefit though

Korean major LG announced plans to invest Rs 1,150 crore over the next six years in India, reiterating that India is an important market.

What's more, it has set an ambitious revenue target of $10 billion (Rs 45,000 crore) by 2010, which would require a CAGR of 36.4 per cent in the next six years.

Not too long ago, Samsung officials stated that they expect the Indian consumer durables market to grow at 18 per cent annually. Evidently, LG expects to grow much faster. Going by past experience, it's reasonable to assume that the Korean chaebols will continue to grow at a faster pace.

This obviously spells bad news for domestic manufacturers, most of who have already lost considerable market share to their Korean counterparts. While the overall consumer durables segment has been doing well, growth in the case of domestic manufacturers has been muted.

A study done by ICRA shows that combined turnover of listed companies in the consumer durables space declined 0.9 per cent in the year till March 2004. Worse still, their operating profit fell 21.9 per cent At the aggregate level, the listed companies posted a loss at the PBT level.

It's no wonder the markets have run down the prices of consumer durable stocks in the recent past. The prices of BPL, Mirc and Videocon have fallen between 20 per cent and 45 per cent this year, in some cases shaving off a majority of the gains made in the 2003 rally.

The consumer durables market, as LG officials would have us believe, may be set for an explosion. The markets don't seem to doubt that "" a component manufacturer, Samtel Colour, has gained almost 300 per cent since last year's rally began. But whether domestic consumer durable manufacturers will benefit to the same extent is another matter altogether.

Eveready Industries

Eveready Industries India has finally initiated the process of demerging its FMCG (comprising batteries and packet tea) and bulk tea businesses after toying with the idea for the least two years.

Initially the company wanted to demerge the two businesses to bring in a strategic investor in the batteries business. However, the company seems to have put that on hold, with both the businesses looking up.

The only impediment in the way of demerging the two businesses was that the bulk tea division was running at a loss. The group happens to be the second largest bulk tea producer in the country with a production of 42 million kg. With the prospects of the tea industry recovering, the company has now taken the opportunity to demerge the two businesses.

The objective now is to create two focused businesses. The main reason behind clubbing the batteries and packet tea was to cash in on the batteries' distribution channel.

Eveready is already selling its packet tea brands in Eveready vans in the rural market. The group also plans to expand its FMCG portfolio and has set up a team to identify a product which would give it topline growth. The batteries capacity is also being enhanced.

The group realised that there was no synergy between the bulk tea and batteries business, as the packet tea was hardly using any of the in-house tea, which again was fetching better prices in the market.

Moreover, the fortunes of the batteries business was being linked to the bulk tea, a cyclical commodity which has seen one of its longest downturns. The demerger would now facilitate independent operations of the two businesses.

Pharmaceuticals companies

The September quarterly results of large pharmaceutical companies will be interesting, as most companies in this sector have been grappling with rising input prices of fine chemicals, surging costs of research and development before the new patent regime comes into force and the adverse FDA rules on generics.

For Dr Reddy, analysts are expecting an approximately 35 - 40 per cent drop in September quarterly profits ""- it is understood to be still facing pricing pressure in two important generic drugs in the American market.

Also the company has had no big product launch since its exclusive marketing rights for a generic version of Eli Lilly & Co's anti-depressant Prozac ended almost two and half years ago. But other companies are expected to do better.

In the case of Ranbaxy, one could expect September profit to grow approximately 15 - 20 per cent year - on year backed by expanding sales in Western Europe for products like Visclair (for treatment of chronic obstructive pulmonary disease).

In its US portfolio, it has shown signs of facing continued price pressure for the key Cefuroxime Axetil (anti-infective) but it is understood that Ranbaxy has ramped up sales of other products like Amoxyxillin. And this strategy is expected to offset the decline from weak sales of Cefuroxime Axetil.

For Cipla one could expect a growth of 20 - 25 profit growth largely due to an improvement in sales of its anti-AIDS medication in Africa and its expansion in the asthalin segment of Western Europe.

Meanwhile, MNC pharma companies are not affected by the recent move of the US FDA. GlaxoSmithKline Pharmaceuticals is expected to report a 25-30 per cent growth in September quarter profit, due to improved sales of Augmentin (an antibiotic) and its skin anti-infectives in the domestic market.

With contributions from Mobis Philipose, Ishita Ayan Dutt and Amriteshwar Mathur