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TVS Motor Company, Dr.Reddy's Laboratories, Rashtriya Chemicals and Fertilisers

TVS MOTOR COMPANY Facing Tough Competition TVS Motor Company, a flagship company of the TVS Group, is India

Companias

TVS MOTOR COMPANY

Facing ToughCompetition

T
VS Motor Company, a flagship company of the TVS Group, is India’s third largest two-wheeler manufacturing company. The company has a significant presence in motorcycles, geared and ungeared scooters and the mopeds segment. During 2004-05, the company’s market share in mopeds was 75 per cent, while it was 13 per cent and 28 per cent in motorcycles and ungeared scooters, respectively. TVS Motor exports its products toBrazil, Nigeria, Colombia, Iran and a few other countries.

The company’s financial performance suffered in 2004-05, due to significant increases in costs of raw materials such as steel, aluminium and plastic. The company reported a marginal rise of 2 per cent in net sales to Rs 2,875 crore over 2003-04, but net profit suffered a fall though by just

0.7 per cent to Rs 137 crore. This happened despite earnings being supported by exports, which grew by 75 per cent to Rs 122 crore. In physical terms, the company’s two-wheelers sales rose by 1.7 per cent to

11.6 lakh vehicles, of which ungeared scooters and mopeds registered increases of 19 per cent to 2.2 lakh units and 5 per cent to 2.6 lakh units, respectively. But, sales of the motorcycle segment dipped by 4 per cent to 6.7 lakh units, due to tough competition from rivals.

During 2004-05, TVS Motor successfully launched several new products. Each of them received an encouraging market response and they are expected to contribute significantly to growth during 2005-06 as well. During the first half of 2005-06, TVS Motor launched a new 150cc motorcycle “Apache” in the premium segment as well as two entrylevel bikes, namely, Victor Edge – 125cc and Star City – 100cc and also a 90cc scooty Pep Plus.

For the first time in the history of the company, TVS Motor, is acquiring land in Indonesia, for setting up a manufacturing plant for two-wheelers with an initial annual capacity of 1.2 lakh vehicles per annum at an estimated investment of Rs 225 crore. It is also establishing a motorcycles plant with an initial annual capacity of 3 lakh vehicles for manufacture of 100cc-125cc motorcycles at Solan district in Himachal Pradesh at an estimated cost of Rs 90 crore. Both the projects are expected to commence production by the end of 2006. The company is also planning to build three-wheeler vehicles at its plant in Mysore.

For the first nine months ended December 2005, TVS Motor reported an 11 per cent increase in net sales to Rs 2,157 crore over the same period in the previous year. Even so, net profits have continued to fall, this time by 2 per cent to Rs 88 crore. The launch of new models has helped the company increase its sales in recent months. The total two-wheelers sold in nine months ended December 2005 stood at 9.9 lakh units, recording a growth of 14 per cent over the same period in the previous year. The total export of vehicles during April-December 2005 has surged by 67 per cent at 61,320 units.

Furthermore, TVS Motor total twowheelers sales in January 2006 have increased by 19.5 per cent to 1.12 lakh vehicles over January 2005. The total motorcycle sales have gone up by 24.5 per cent to 69,300 units of which the economy segment bike Star City has been the main growth driver. On the export front, the company has registered a robust growth of 147 per cent to 6,000 units in January 2006.

m

DR REDDY’S LABORATORIES

Right Prescription

D
r Reddy’s Laboratories (DRL) is India’s second largest pharmaceutical company, established in 1984. The company has five segments, namely, active pharmaceutical ingredients (API), branded formulations, generics, critical care and biotechnology and discovery research. The company has an active presence in overseas markets such as Russia, Europe and the US.

During 2004-05, DRL witnessed a fall in its revenue for the first time in the company’s history due to intense competition and severe pricing pressure in the US generic markets for the company’s two key products, namely, fluxoetine and tizanidine, and in Europe for an API called ramipril. During the year under review, its net sales dipped by 6.5 per cent to Rs 1,557 crore over 2003-04 and net profit dipped by 77 per cent to Rs 65 crore. On a consolidated basis, DRL Group’s net sales declined by 5 per cent to Rs 1,835 crore during the year and net profit plummeted by 87 per cent to Rs 32.9 crore.

The spree of mergers and acquisitions continues in the pharmaceutical sector. Recently, DRL has entered into an agreement to acquire German generic drug maker, Betapharm, for approximately Rs 2,688 crore. DRL has entered into research collaboration with Argenta Discovery of the UK to develop and commercialise a novel approach to the treatment of chronic obstructive pulmonary disease. DRL acquired Roche’s API business at its manufacturing unit at Cuernavaca, in Mexico in a $ 59 million deal. DRL has introduced various new products in collaboration with overseas companies. In a strategic collaboration with Symbiotics of New Zealand, the company has launched a new drug Colostrum for prevention and treatment of several gastro/ intestinal infections. It has also launched Plermin, the first drug to be launched in India, for the treatment of diabetic foot ulcers. Through an alliance with Cymbiotics, a US-based bio-pharmaceutical company, it has introduced Celadrin, a drug that helps reduce pain for jointrelated problems.

DRL has launched Viboliv (metadoxine), aimed at preventing liver damage resulting from alcohol intake in both 500mg and 300mg tablet forms. The company has launched Shadowz, a sunscreen lotion in gel form, for patients prone to or suffering from melasma and photo dermatitis.

DRL will set up a drug development company, Perlecan Pharma, financed by ICICI Venture Capital and Citigroup Venture Capital, with the total investment of Rs 231 crore. Both the venture capital companies will invest Rs 99 crore each and DRL will invest Rs 33 crore.

For the nine months ended December 2005, DRL’s net sales have been augmented by 25.5 per cent to Rs 1,508 crore over the same period of previous year and net profit has galloped by 203 per cent to Rs 225 crore. All business segments of the company have registered a healthy growth in sales revenue. Amongst them, the main growth drivers are formulations with a 30 per cent rise in the revenue to Rs 772.8 crore, followed by API with 29 per cent increase to Rs 637.5 crore.

m

Economic and Political Weekly March 4, 2006

The Week’s Companies RASHTRIYA CHEMICALS

(Rs lakh)

AND FERTILISERS

TVS DRL RCF Motor

On Expansion Mode

Financial Indicators 2004-05 2003-04 2004-05 2003-04 2004-05 2003-04

Income/Appropriations

1 Net sales 287591 282021 155769 166663

2 Value of production 287591 282021 158731 167629

3 Other income 7634 3515 6867 7574

4 Total income 295225 285536 165598 175204

Raw materials/stores and spares/

power and fuel consumed 204713 192203 61725 63123

6 Other manufacturing expenses 0 0 16863 15341

7 Remuneration to employees 14072 13375 18236 15384

8 Other expenses 47649 50501 54364 43701

9 Depreciation 8963 7989 9246 7172

Gross profit 19828 21468 5163 30482 11 Interest 79 121 996 148 12 Operating profit 19749 21347 4168 30334 13 Non-operating surplus/deficit 296 106 268 0 14 Profit before tax 20045 21453 4436 30334

Tax provisions 6288 7604 -2110 2015 16 Profit after tax 13757 13849 6546 28320 17 Dividends (includes tax on dist profit) 3089 3141 3826 3826 18 Retained profits 10668 10708 2720 24494

Liabilities/assets

19 Paid-up capital 2375 2375 3826 3826

Reserves and surplus 65508 55120 203582 200876 21 Long-term loan 943 2886 1060 2628 22 Short-term loan 17741 9015 26264 3194

(i) of which, bank borrowings 17501 1772 17 3194 23 Gross fixed assets 129412 114209 106435 91620 24 Accumulated depreciation 52364 43791 44168 35285

Inventories 23323 21666 30381 25801 26 Total assets/liabilities 144562 125871 280950 249702

Miscellaneous items 27 Excise duty 44534 43980 6738 7357 28 Gross value added 37860 42925 26623 46886 29 Total foreign exchange earnings 12220 6948 91974 98543

Total foreign exchange outgo 14355 11275 42409 38177

Key financial and performance ratios 31 Turnover ratio(sales to total assets) 2.5 2.8 0.6 0.7 32 Gross value added to gross

fixed assets (%) 31.1 43.4 26.9 56.7 33 Return on investment (gross profit

to total assets) (%) 14.7 18.7 1.9 13.1 34 Gross profit to sales

(gross margin) (%) 6.9 7.6 3.3 18.3

Operating profit to sales (%) 6.9 7.6 2.7 18.2 36 Profit before tax to sales (%) 7.0 7.6 2.8 18.2 37 Tax provisions to profit before tax (%) 31.4 35.4 -47.6 6.6 38 Profit after tax to net worth

(return on equity) (%) 21.9 27.8 3.2 14.7 39 Dividend (%) 112.3 114.4 86.0 87.2

Earnings per share (Rs) 6.0 6.0 8.6 37.0 41 Book value per share (Rs) 29.4 24.9 271.1 267.5 42 P/E ratio (multiple) 12.0 14.5 66.6 19.0 43 Debt-equity ratio (adjusted for

revaluation) 0.28 0.21 0.13 0.03 44 Short-term bank borrowings

to inventories (%) 75.0 8.2 0.1 12.4

Sundry creditors to sundry

debtors (%) 1308.4 811.2 84.1 64.0 46 Total remuneration to employees

to value added (%) 37.2 31.2 68.5 32.8 47 Total remunerations to employees

to value of production (%) 4.9 4.7 11.5 9.2 48 Gross fixed assets formation

(% growth) 13.3 36.8 16.2 24.4 49 Growth in inventories (%) 7.6 1.2 17.8 7.5

R
ashtriya Chemicals and Fertilisers (RCF),

171099 159772

a government of India undertaking,

171243 153864 113165 86797 was established in 1978 after reorganisation 284408 240661 of the erstwhile Fertiliser Corporation of India and National Fertilisers. RCF is one of 178844 141363 the prime chemicals manufacturers in the12352 6159

country producing several industrial chemi

14009 12432

cals. The company produces methanol,

51158 45777

sodium nitrate, ammonium bi-carbonate,

6964 6917 21081 28013 formic acid, ammonium nitrate, etc. The 810 3243 company is also engaged in the production 20271 24770 and marketing of fertilisers and has a wide 988 943 product range: Suphala, Microla, Biola,21259 25713

Sujala and Ujjwala urea. Its market share

7163 8934

is about 9 per cent of the fertiliser market

14096 16779

in the country. The company has two manu

9379 9379 4717 7400 facturing units at Trombay in Mumbai and at Thal in Raigad district of Maharashtra.

55169 55169 During 2004-05, despite a 7 per cent rise 72935 69540 over 2003-04 in net sales to Rs 1,710 crore,19774 9494

RCFs profitability declined by 16 per cent,

17697 11880

with net profits placed at Rs 140 crore. The

10000 9000

company’s total sales volume of fertilisers

247175 232341 149527 142897 increased by 5 per cent to 25.36 lakh metric 43399 39139 tonnes (MT) during the year under review 227717 202137 and the industrial product division achieved a sales turnover of Rs 444 crore, recording a

5546 4555

growth of 14.5 per cent over the same period

-68581 -36216

in the previous year. The company’s export

906 16

turnover rose to Rs 9 crore for 2004-05 as

17926 10302

against Rs 0.16 crore during thepreviousyear.

0.8 0.8 RCF undertook various expansion and diversification projects during 2004-05.

-28.6 -15.7 The company successfully completed the modernisation of its nitric acid plant at its

9.8 13.3

Trombay unit at a cost of Rs 85 crore. It also undertook technology upgradation at its

12.3 17.5

  • 11.8 15.5 Trombay-V ammonia plant at an estimated
  • 12.4 16.1 cost of Rs 249 crore, which is expected to
  • 33.7 34.7 be completed by April 2006. The expansion project taken up at Thal is to increase

    11.2 13.8

    the production capacity of the methylamine

    14.6 14.8

    plant to produce an additional 6,400 MT

    2.6 3.0

    per annum to meet the growing demand

    23.2 22.6

    12.4 14.5 of methylamines in domestic market at an estimated cost of Rs 29.8 crore.

    0.29 0.17 Due to the non-availability of natural gas from Bombay High, RCF has closed down

    23.0 23.0

    its two small units at its Trombay plant and they would be re-started when gas supply

    22.3 19.8

    resumes. Production at the Trombay plant -20.4 -34.3 might get affected due to the shutdown. For the nine months ending December

    8.2 8.1 2005, RCF has reported a 5.4 per cent rise in net sales to Rs 2,217 crore over the same

    6.4 1.1

    period in the previous year. However, net

    10.9 -13.8

    profits have declined by 15 per cent to

    m

    Notes: P/E multiples are the latest with corresponding last year’s figures. Rs 68 crore.

    Economic and Political Weekly March 4, 2006

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