| Earlier this year, the group had bought Thomson's tube manufacturing facility at Italy for an undisclosed amount. |
| The deal is being done through a unlisted, offshore entity of Videocon, in which three listed group companies - Videocon International, Videocon Appliances and Videocon Communications - have a 19 per cent stake each. |
| Thomson shares were up on news that the company had rid itself of the loss-making units. By that logic, the acquisition could hit profitability of the Videocon group, although it remains to be seen whether it can turn around the fortunes of the flagging cathode ray tubes manufacturing units. |
| But for now, the Indian group has inked a rather favourable deal. The deal size is far lower than the rumoured $1 billion consideration. Besides, Thomson will reinvest the 240 million euros in two Videocon companies. |
| Videocon International, the group's flagship company that's involved in the consumer durables business, will get only 15 million euros (Rs 79 crore), while the balance will go to Videocon Industries, which focuses on the energy business. |
| Importantly, Thomson's investment in Videocon Industries will be made at close to its current traded price of about Rs 440 a share, compared with Rs 25 a share a year ago. |
| True, the valuation of this company has improved in the past year because of aggressive plans in the energy space and also its plans to merge group company, Petrocon with itself. (Petrocon holds a 25 per cent stake in Raava oil fields in the Krishna-Godavari basin that gives an output of about 50,000 barrels of oil per day at a very low operating cost.) |
| Nevertheless, Thomson is entering the company at a rather high price, especially considering that the stock has jumped by more than 75 per cent in the past three months itself. |
| While it's still not clear what the company's earnings would be post its merger with Petrocon, on a standalone basis it had an annualised EPS of just Rs 1.3 for nine months ended March 2005 and annualised sales of only Rs 178 crore. Its share price, however is Rs 445, which gives it a market capitalisation of almost Rs 1800 crore. |
| The high investment will help Videocon Industries fund its capex, making it the biggest gainer from the deal with Thomson. It's important to note here that promoters own close to 90 per cent of the company's current equity (as of March 2005). |
| The impact on other listed entities, such as Videocon International, would largely depend on how the acquired business will perform, since they will have a 19 per cent exposure to the acquired business. |
| Pfizer India |
| Pfizer India has reported a 56 per cent growth in its profit before exceptional items and taxation in the quarter ended May 2005, despite net sales remaining more or less stagnant. While sales were flat owing to the value added tax (VAT) imbroglio, the company kept a tight check on operating expenditure. |
| Sales in the pharmaceuticals segment fell about 1.6 per cent to Rs 120.21 crore. While sales were hit last quarter owing to VAT, it's important to note that the domestic market has seen lacklustre growth for the past 10-11 months. |
| However, cost controls have helped the pharmaceutical segment's profit expand by 29.29 per cent. Improved efficiency levels helped overall operating profit to grow by 91.1 per cent to Rs 24.58 crore in the May quarter and operating profit margin improved by 868 basis points to 18.21 per cent. |
| A sequential comparison of the company's sales is not strictly objective given the seasonal nature of certain medications. But it's interesting to note that the company's net sales expanded by 1.52 per cent sequentially, which could imply that the worst may just be behind for the company. |
| Going forward, a recovery in sales and profit growth would be key to justify the stock's current valuations, which is high at about 25 times estimated earnings for the year ending November 2005. |
| Crude prices "" from backwardation to premium |
| With Nymex crude at more than $60 a barrel, worries about peak oil have once more surfaced, with Goldman Sachs' prediction of $105 a barrel in the next few years looking increasingly plausible. Opec has blamed lack of refining capacity, while others have blamed speculators. |
| There's little doubt, however, that there are pressures both from the demand as well as the supply side. Strong growth in the US and Asia has fuelled demand, while shortages have developed along the production chain, from oil production to refining. |
| Interestingly, in the last few months, oil futures on the Nymex have moved from backwardation to premium. Last year, oil futures were in backwardation, which means that prices for future months were lower than the spot price. |
| Futures prices are usually higher than spot prices, since they reflect the interest factor ""- but crude oil was an exception. Analysts cautioned against taking that as an indicator of lower crude prices in the future ""- after all, oil had been in backwardation ever since the Iran war, and we've had prices zooming up since then. |
| Rather, they attributed the backwardation in oil to storage costs ""- the argument was that spot prices had to be higher than futures to give an incentive to pump oil now. Well, that logic doesn't seem to be holding up either, with future oil prices becoming higher than the spot price. |
| That's taken by some as a sign that futures traders are getting increasingly bullish about oil prices in the future. The fact remains, however, that it's cheaper to buy oil and store it, rather than buy futures. The further month futures, however, continue to show backwardation. |
| Whatever be the explanation, there's no doubt that the trend in oil prices has decisively altered in recent months. |
| With contributions from Mobis Philipose and Amriteshwar Mathur |
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