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BPL: Threats unlimited

Feb 11, 2002

The consumer durable sector continues to reel under pressure on account of slowdown in the economy. While select companies like BPL have managed to gain market share in the colour television segment (CTV), price realisations has been on the decline. We take a look at the third quarter performance of BPL and its future prospects.

(Rs m) 3QFY01 3QFY02 Change 9mFY01 9mFY02 Change
Net sales 4,711 3,830 -18.7% 12,836 10,126 -21.1%
Other Income 6 1 -92.2% 4 1 -88.1%
Expenditure 4,294 3,366 -21.6% 11,628 8,920 -23.3%
Operating Profit (EBDIT) 417 464 11.3% 1,207 1,206 -0.1%
Operating Profit Margin (%) 8.8% 12.1%   9.4% 11.9%  
Interest 123 249 102.3% 313 608 94.3%
Depreciation 78 87 11.9% 223 248 11.3%
Profit before Tax 222 128 -42.3% 676 351 -48.1%
Tax 22 13 -39.5% 55 30 -45.5%
Profit after Tax/(Loss) 201 115 -42.6% 621 321 -48.4%
Net profit margin (%) 4.3% 3.0%   4.8% 3.2%  
No. of Shares (m) 27.7 27.7   27.7 27.7  
Diluted Earnings per share* 29.0 16.6   29.9 15.4  
P/E ratio (x)   3.0     3.2  

The highlight of the company's 3QFY02 result is the performance of its CTV division. CTV sales grew by 4% in 3QFY02 as compared to the third quarter of previous year. The company sold 130,777 CTVs in November 2001, the highest ever sale in the industry by a single brand in a single month. BPL continues to lead the CTV segment with the market share of around 17% in October 2001. While its market share declined in 1QFY02, new launches in the flat CTV segment resulted in BPL regaining its market share in 2QFY02.

However, overall sales turnover declined by 21% during the same period. This was primarily on account of weaker demand for its home appliance and audio divisions. To put things in perspective, as per newspaper reports, the refrigerator market registered a negative growth of around 14% between January-November 2001. While direct-cool refrigerator demand went down by around 8%, the frost free segment also witnessed a sharp slump. BPL seems to have lost market share in the refrigerator segment, especially in frost-free, with multinational majors like Whirlpool, LG, Samsung and Kelvinator moving up the ladder. But the company has enhanced the share in the domestic alkaline batteries market to 39% in September 2001.

Operating margins in 3QFY02 have gone up significantly and as a result, operating profits for 9mFY02 has remained at the previous year's level. The rise in margins could be attributed to the benefits arising out of backward integration and various cost saving initiative taken by the company. It is estimated that the company saves around Rs 300 per CTV-manufactured on account of its backward integration.

Interest costs have risen significantly in 3QFY02. BPL tapped the market to raise close to Rs 2.3 bn through a mix of non-convertible debenture issues, commercial papers and fixed deposits in December 2001. CRISIL, the rating agency, downgraded the debt programme sighting the financial risk profile of the company. Consequently, BPL might have mobilised at higher interest rates. Its investment in subsidiary companies like BPL Display Devices and BS Refrigerators, which are not doing well, are also a cause of concern.

As a part of the restructuring exercise, BPL is expecting an inflow of around Rs 1 bn from Sanyo of Japan when the latter raises its stake in BPL's home appliances business. Sanyo currently has a 14 per cent stake in BPL's appliances business. But BPL is proposing to merge BS Appliances and BS Refrigerators and make the merged entity a 50:50 joint venture between itself and Sanyo.

Net profit for the first nine months of the current fiscal stood at Rs 321 m, a 48% fall over 9mFY01. While the recovery in CTV demand is heartening, BPL is expected to lose market share in the home appliance and audio segment in the coming quarters also. In light of a subdued demand scenario, smaller players have opted for a pricing game, which seems to have resulted in a 15% decline in CTV price realisations in the current fiscal. If customs duty are lowered even further in the forthcoming budget, imports could make a serious dent in market share of the domestic consumer durable manufacturers. On the other hand, the industry has been lobbying for lowering customs duty on picture tubes for some time. If it is lowered, it might bring some respite to the industry. The stock currently trades at Rs 50 implying a P/E multiple of 3.2x annualised nine months earnings. Though valuations seem to be on the lower side, considering the risk profile of the company, it seems to be fairly valued.


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