The Royalty Factor

Indeed, the bottomline would have shown a negative growth, if other income had not increased 144.39 per cent to Rs 12 crore. This increase is mainly due to recoveries made from another company for services provided during last year. However, net profit increased by 19.3 per cent to Rs 25.16 crore.

Sales have also shown a slowdown, increasing only by 15.31 per cent to Rs 266.57 crore. How-ever, the company claims that in the corresponding period of last year, sales to the tune of Rs 21.07 crore included a one-time sales proceeds of finished goods stock and sale proceeds from products discontinued in that year. Taking this into effect, the actual sales growth is said to be 26.9 per cent and the company claims these factors have affected the rate of growth of profitability.

The interest burden has come down sharply by 69.3 per cent to Rs 1.05 crore. This may be, because, the company had paid back part of its loans. The company had a very low debt burden at the beginning of the year of less than Rs 8 crore.

However, there was only a marginal increase in depreciation and tax liability which had a minor effect on the bottomline. Depreciation increased by 12.58 per cent to Rs 3.49 crore which may be due to the modernisation of its two plants.

The scrip had witnessed heavy selling pressure in February when the royalty payment was announced. The scrip continued to be subdued till April 1997 on account of the company transferring its fruit salts business (brandname Eno) to SmithKline Beecham Asia. How-ever, to enthuse its shareholders, the company announced a 3:5 bonus issue. From here, the stock started its northward journey. Even then, the ex-bonus price is higher than the price that was prevailing in March 1997. To further reward its shareholders, the company has announced an interim dividend of Rs 2 per share on the expanded equity. This should keep off the negative sentiment on the scrip.