MICO: The missing spark

Rising inputs costs mar MICO's December quarter numbers

MICO's results for the quarter ended December 2005 were just ordinary. Though adjusted operating revenues for the company grew 36.06 per cent y-o-y to Rs 868.39 crore in the quarter, operating profit grew only 1.1 per cent to Rs 160.13 crore.

In addition, rising costs, such as consumption of raw materials and other expenses, led to operating profit margin shrinking 638 basis points y-o-y to 18.43 per cent in the December 2005 quarter.

Also, the company saw its operating profit margin shrink 401 basis points y-o-y to 21.23 per cent in CY05. The stock has dipped about 2.8 per cent since the declaration of the last quarter result.

Raw material costs jumped 62.17 per cent to Rs 441.43 crore in the December 2005 quarter and even as a percentage of net sales, they rose 818 basis points to 50.83 per cent.

Higher raw material cost is attributed to rising cost of components, spare parts relating to its products such as diesel fuel injection equipment, point out analysts.

These higher costs more-or-less neutralised the improved top line performance of the company in its core automotive products business.

Apart from opportunities in the domestic market owing to the growth in the automobile sector, going forward, the Indian subsidiary is expected to increase exports to other companies in the Robert Bosch group. At a forward P/E of about 19 times, the stock is reasonably priced at Rs 3,174, despite the recent hiccup.

Abbott: Operating profit blues

Abbott India has reported 13.36 per cent y-o-y drop in its operating profit to Rs 19.98 crore for the quarter ended November 2005, despite net sales expanding 11.53 per cent to Rs 117.48 crore.

Like other players in the domestic pharma business, the company benefited from an uptick in demand for its medications in segments such as gastroenterology and diabetes in the last quarter.

Nevertheless, Abbott's operating profit margin slipped 442 basis points y-o-y to 17 per cent in the November 2005 quarter.

This pressure on operating margins was largely owing to purchase of finished goods rising 35.17 per cent y-o-y to Rs 80.7 crore, and even as a percentage of net sales, this cost rose 1200 basis points to 68.7 per cent.

Analysts hold higher excise duty paid on formulations bought from third parties responsible for this rise in the purchase of finished goods.

Abbott's operating profit margin for the year ended November 2005 also declined 364 basis points to 17.15 per cent. Earlier, GlaxoSmithkline Pharmaceuticals had also reported a rise of 14.75 per cent y-o-y in the cost of total materials for December 2005 quarter and it resulted in operating margins remaining flat on a y-o-y basis at 23.7 per cent.

The Abbott stock has fallen about 6.5 per cent to Rs 658 since the declaration of the last quarter results to Rs 670 levels on Thursday.

Time to split

With stock markets close to their highs and a good quarter gone behind, many stocks have ended up at stratospheric levels. Around 80 companies trade at over Rs 1,000 on an average day. ABB, Bhel, Aventis Pharma, Honeywell, Grasim and Crisil are just some of the companies that trade over Rs 1,000 levels.

Though the absolute share price is not a deterrent as even one share can be purchased, investors get inhibited by high prices. Managements address this issue by splitting the share or issuing a bonus, so the absolute price comes down. Some of this activity has already started and is expected to increase.

Thermax has recently declared a 1:5 split as the stock has more than doubled in the past year to Rs 1,337. The Siemens stock, which has more than trebled to Rs 5,662 in the past year also announced a 1:5 split, which is pending shareholder approval. Grindwell Norton too has announced a 1:1 bonus and 1:2 split, though its share price is still not very high at Rs 648.

Bonuses and splits do not mean much in real terms for investors, but the stock price generally goes up after a company announces a bonus or a split.

Many companies such as LMW, Zandu Pharma and PSU banks such as State Bank of Mysore and State Bank of Travancore still have their paid-up at Rs 100, and though they trade at high levels, they have never split their shares. Some companies like TCS (Rs 1 paid-up) and L&T (Rs 2 paid-up) do not have much room to split.

But in many other cases there is a lot of room to split, even if the managements do not issue bonus shares. While there are periodic rumours of bonus or split in some of these companies with high stock prices, it will not be surprising to see some of these companies issue bonuses and splits and make the stocks more investor-friendly.