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Kodak: Express growth - Views on News from Equitymaster
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  • Feb 21, 2001

    Kodak: Express growth

    Kodak India has reported a 13% jump in net profits for the financial year 2001 to Rs 6,674 m. However, sales for FY00 includes sales from the company's Graphics Art division (Rs 215 m), which it hived off in November 1999. Excluding this, sales has actually gone up by 17% in the current financial year.

    Other income is up sharply by 88% to Rs 46 m because the company has invested a part of the money raised through rights issue in government securities. The company raised Rs 734 m via rights issue last year to set up indigeneous film manufacturing facility and retire its high cost debts. One of the primary reasons for the rise in operating margins is the setting up of the film manufacturing facility, which used to be a drag on the company's expenses. The company used to import these film rolls, as a result of which whenever rupee depreciated, margins were hit directly.

    (Rs m) FY00 FY01 Change
    Sales 5,899 6,674 13.1%
    Other Income 24 46 87.7%
    Expenditure 5,316 5,969 12.3%
    Operating Profit (EBDIT) 583 706 21.1%
    Operating Profit Margin (%) 9.9% 10.6%  
    Interest 89 31 -65.0%
    Depreciation 74 123 66.4%
    Profit before Tax 444 597 34.5%
    Other Adjustments (35) -  
    Tax 160 256 60.0%
    Profit after Tax/(Loss) 249 341 36.8%
    Net profit margin (%) 4.2% 5.1%  
    No. of Shares (eoy) (m) 11.2 11.2  
    Diluted number of shares 11.2 11.2  
    Earnings per share 22.3 30.5  

    Depreciation is also up sharply as the company has revised the depreciation rates for information technology related assets and motor vehicles from 16.2% and 9.5% respectively to 33.3%. Hence, an additional charge of Rs 52 m has been taken in the current financial year.

    The impressive growth in sales is actually led by the aggressive stance that the company has taken in recent times by opening more Kodak Express outlets. Besides, the company has also moved up the value chain by manufacturing products for motion picture industry and digital imaging technology, both of which have huge upside potential (more than 30% of turnover comes from these businesses). Since the company has set up its own film roll manufacturing facility, the company is partly insulated from fluctuations in exchange rates. Hence, we expect operating margins to improve in coming years.

    The stock is trading at Rs 565 at a P/E multiple of 18.5x the FY01 earnings. On the FY01 sales of Rs 6,674 m, market capitalisation to sales works out to 0.9 times (market capitalisation is Rs 6,322 m). After touching its 52 week low of Rs 341 on 31st October 2000, the scrip has moved up sharply to touch its 52 week high of Rs 584 on 15th February 2001, a gain of 71%.



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