Emami Ltd, the maker of Boro Plus and Navratna Oil, is offering shares to the public, mainly in order to increase its non-promoter holding from the current 3.9 per cent to the stipulated level of over 10 per cent. | |
| Although the requirement of increasing non-promoter holding has been long standing, the company had managed to stave off the issue thus far. |
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| Needless to say, with the markets near all-time highs and with FMCG stocks now participating in the rally, the time chosen to hit the markets couldn't be better. |
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| Emami's topline growth has been more or less stagnant in the recent past. In the nine months till December 2004, sales grew just 3.2 per cent. |
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| However, operating profit rose 19 per cent, with operating margin improving by over 200 basis points. While savings from the company's new Guwahati plant (which enjoys tax breaks) kicked in, the fact that there were no major brand launches also helped. |
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| Going forward, Emami is expected to gain from the implementation of VAT, since the white paper on VAT released earlier this year categorises medicines and drugs under the 4 per cent tax rate. Over 90 per cent of Emami's revenues are classified as ayurvedic medicines and on an average they currently bear sales tax of around 10 per cent. |
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| Unless VAT bills of state governments change these definitions, Emami would end up with considerable savings, which if passed on would aid sales growth. |
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| The upper end of the price band, Rs 70, is a discount to the current market price of around Rs 88, but one must note that the stock had traded at sub Rs 50 levels as recently as November 2004. |
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| As far as valuations go, the upper end of the issue's price band discounts estimated FY05 earnings by around 15 times, lower than the valuation of 22 times enjoyed by Dabur. |
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| Crompton Greaves |
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| Crompton Greaves' recent takeover of the transformer businesses of the Belgium-based Pauwels Group for Euro 32.1 million (approximately Rs 180 crore) is the latest example of India Inc acquiring a global footprint. |
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| Pauwels is one of the world's top ten manufacturers of three-phase transformers, with a global marketing network in over 120 countries. In FY04, Crompton Greaves' power systems division (with transformers its key focus) contributed 41 per cent to its income from operations of Rs 1861.05 crore. |
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| Hence its overseas acquisition is expected to significantly strengthen its core operations, as well as enable it to acquire global scalability. |
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| Crompton Greaves' total exports amounted to Rs 282.6 crore in FY04 and this is set to grow aggressively in the medium term, once operational synergies with Pauwel are fully realised. The stock has gained about 8 per cent after the deal was announced last week. |
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| The company is also expected to benefit by the recent budget proposals to expand the rural power network across the country and going forward, that should result in further strengthening of Crompton's order backlog which amounted to Rs 990 crore at the end of December '05. |
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| Earlier, Crompton Greaves had reported a 177 per cent growth its profit before tax, exceptional and extra-ordinary items to Rs 35.68 crore in the last quarter. |
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| Profit growth has been aided by improved performance of its power systems and industrial systems divisions. Also operating profit margins have grown 264 basis points to 9.14 per cent in the last quarter, despite higher input prices. |
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| The Budget and market sectors |
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Which are the sectors whose performance have undergone a sea change after the Budget? A look at the behaviour of the sectoral indices before and after the Budget gives an idea of the market's perception of which sectors stand to gain the most. To eliminate the effect of overall market movements, the sectoral indices are being compared with reference to the Sensex.
| Pre-Budget | | | % Change between Feb 14 & Feb 25 | | BSE-Auto | -5.27 | | BSE-Bankex | -0.77 | | BSE-Cap. Goods | 3.47 | | BSE-Cons Durable | -5.4 | | BSE-FMCG | -3.83 | | BSE-Healthcare | -2.81 | | BSE-IT Sector | -1.8 | | BSE-Metal | -0.03 | | BSE-Oil & Gas | -1.55 | | BSE-PSU | -0.66 | | BSE Sensex | -1.64 |
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| Post-Budget | | | % Change between Feb 25 and March 2 | | BSE-Auto | 1.4 | | BSE-Bankex | 5 | | BSE-Cap. Goods | 2.12 | | BSE-Cons Durable | 1.6 | | BSE-FMCG | 3.8 | | BSE-Healthcare | 0.3 | | BSE-IT Sector | Unchanged | | BSE-Metal | 3 | | BSE-Oil & Gas | 0.64 | | BSE-PSU | 0.93 | | BSE-Sensex | 1.78 |
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| The most dramatic change has happened in the BSE FMCG index. This index had severely underperformed the Sensex in the two weeks prior to the Budget, but has been a major outperformer in the two days since the Budget. The change is on account of reduction key input costs. |
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| The oil and gas sector has underperformed after the budget, as concerns over the mounting subsidy bill for oil marketing companies has dampened investor sentiment. Capital goods and the metal industry continue to be the favourite both before and after the Budget. |
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| There are some surprises. The auto sector, for instance, is widely perceived to have reacted adversely because excise duties were not reduced. But the fact is that it was an underperformer even before the Budget. |
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| With contributions from Mobis Philipose and Amriteshwar Mathur |
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