Aventis Pharma: Top Line Pain

Unlike other pharma MNCs, Aventis Pharma has not been able to boost its top line in Dec quarter

Aventis Pharma has reported lacklustre results for the December 2005 quarter. Adjusted net sales of the company have fallen about 2.2 per cent to Rs 192.9 crore in the last quarter and in addition, adjusted operating profit dipped 13.8 per cent y-o-y to Rs 53.1 crore.

The operating profit margin has fallen 371 basis points y-o-y to 27.52 per cent in the December quarter. Pressure on margins has been due to rising material costs coupled with other higher expenditure for the company. The stock declined 3 per cent to Rs 1,840 after the result.

Adjusted material costs as a percentage of net sales rose by 78 basis points to 45.15 per cent in the quarter. Analysts say that higher material costs was largely due to rising cost of imported inputs, which are sourced mainly from the parent's global operations.

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 but that was due to higher excise duty paid on formulations bought from third parties.

Meanwhile, other expenditure of Aventis Pharma also rose 13.3 per cent y-o-y to Rs 36.6 crore in the December 2005 quarter.

Other MNC pharma companies had reported a noticeable pick-up in their sales performance during the last quarter, thanks to a revival in domestic demand.

However, in the casea of Aventis Pharma's December 2005 quarter results, that was not the case. The poor top line performance is largely attributed to a slowdown in exports, say analysts.

In terms of valuations, the Aventis stocks trades at about 22 times estimated CY06 earnings, which appears reasonable, considering that other MNC pharma stocks trade at a higher forward P/E.

KSB Pumps: Robust profit despite flat sales

KSB Pumps has reported a 32 per cent y-o-y growth in its operating profit to Rs 16.1 crore in the December 2005 quarter despite net sales remaining flat at Rs 86.7 crore.

Also operating profit margin rose 438 basis points y-o-y to 18.56 per cent in the last quarter. The company has been able to improve margins thanks to a 16.2 per cent y-o-y reduction in staff costs.

In addition, raw material costs as a percentage of net sales fell 567 basis points to 41.3 per cent in the last quarter and that's due to lower cost of steel and forgings, say analysts.

In the key pumps division, analysts point out that the company has had to grapple with competition from the unorganised sector for its submersible pumps.

As a result, segment revenues of the pumps business declined 1.45 per cent y-o-y to Rs 67.9 crore in the December 2005 quarter.

However, the company's cost management strategies appear to have paid off and it helped segment profit of the pumps business expand 20.93 per cent to Rs 10.4 crore in the last quarter.

Also, the segment profit of the valves business expanded 120 per cent to Rs 4.4 crore. Meanwhile, the company's operating profit margin grew 153 basis points y-o-y to 18.1 per cent in CY05.

At its current price of Rs 424, the stock trades at 20 times trailing earnings, and seems a bit immune to the market's current craze for engineering stocks.

SBI Associates: Euphoria Sets In

With the Cabinet approval to an amendment in the SBI Act, there was much more action in the stock prices of SBI and its three listed subsidiaries.

State Bank of Mysore (SBM) gained a whopping 20 per cent for two consecutive days, while State Bank of Bikaner & Jaipur (SBBJ) and State Bank of Travancore (SBT) were up 5 per cent each on both Thursday and Friday. SBI, on the other hand, gained 3.56 per cent.

Investors seem to be expecting some upside from a possible split, as all three banks have a paid-up share of Rs 100. Also, as the shareholding of SBI can fall as low as 51 per cent, the market is expecting these banks to attract more interest.

Though SBM is a much smaller bank, it closed on Friday with over 20 per cent higher market capitalisation than SBBJ and SBT. It is an extremely illiquid stock with an average daily volume of just 750 shares on BSE in the past two weeks, and over 92 per cent of its shares are held by SBI.

In SBBJ and SBT, SBI owns 75 per cent. Compared to a balance sheet size of SBBJ's Rs 24,040 crore and SBT's Rs 29,864 crore, SBM had total assets of Rs 15,901 crore. In terms of valuati ons too, SBM has marched ahead with a book value-to-price ratio of 2.66 times against SBBJ's 1.46 and SBT's 1.64 based on September 2005 net worth.

SBI can raise Rs 1,900 crore by reducing its stake in the three listed banks. In the other four banks, it could raise around Rs 3,500-4000 crore by divesting 49 per cent, say analysts.

With PSU banks like United Bank, Central Bank and Indian Bank mulling IPOs, some follow-on issues from other banks and the SBI divestment, it could be a lot of supply of bank stocks.