As Good As Gold?

THE COMPASS

Nirma had a tough year in 1998-99 by all standards. Detergents and soaps account for about 90 per cent of its turnover. Detergents witnessed a volume deceleration of 1.2 per cent, while soaps grew by just 0.2 per cent. If the company still recorded a 22 per cent turnover growth, it was due to value growth through price increases, sale of other products like LAB and increase in trading income.

Nirma increased the prices of its detergents on an average by 10.8 per cent in 1998-99, but it effected a marginal decrease in soap prices in an attempt to gain market share. Soap sales in value terms declined marginally as a result but it is taking steps to bolster this segment through new launches and new pack sizes.

 

Operating margins have improved in the year to 17.8 per cent from 16.6 per cent in the previous year. Its backward integration LAB plant stabilised achieving 79 per cent capacity utilisation. The current year will see its soda ash plant being commissioned and another project for making N-Paraffin is to be commissioned by June 2000.

These projects will take care of most of its raw material requirements ensuring availability and protect it from price hiccups. Nirma will be selling the surplus in the market which will prop up its bottomline to some extent. The year 1998-99 saw it sell Rs 76 crore worth of LAB. Though Nirma was in to trading initially with a foray in salt, trading has diversified to palm oil and soybean oil. Non-soaps and detergents trading operations accounted for nearly 11 per cent of turnover against 4.5 per cent.

A positive feature is that cash generated from operations has improved a lot, increasing by 1.8 times to Rs 341 crore. If sustained, it will help Nirma gradually ease its gearing bringing down interest costs, and eventually be able to meet a significant part of its working capital requirements from internal accruals.

Ras Propack

Ras Propack's proposal for raising funds through a rights issue is likely to depress investor sentiment as a bloated equity base will make servicing more difficult. Ras is a joint venture between the Ras group and Propack Holding AG, Switzerland which makes laminated tubes. The ratio and price of the rights will be decided upon at forthcoming board meeting.

The funds are being raised to partly meet its working capital requirement and effect a marginal hike in capacities, according to Sameer Kaji, chairman and managing director, Ras. Given its relatively poor track record of performance and returns to shareholders, getting shareholders to subscribe to its rights will be a tough task. However, Propack Holding _ which has a 41.57 per cent stake in the company _ has secured approvals to raise this to 74 per cent.

Ras has a huge equity of Rs 43.30 crore and the returns generated are relatively low. It has made losses since being set up in 1994 with accumulated losses of Rs 19.14 crore in calendar 1997. Add to this the Rs 6.87 crore net loss made in 1998 on