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MIRC: Difficult times - Views on News from Equitymaster
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  • May 25, 2001

    MIRC: Difficult times

    MIRC Electronics is set to announce its fourth quarter results today. Having reported a 11.3% drop in sales in the first nine months of the current year, fourth quarter results are also not expected to something out of turn.

    (Rs m) 9mFY00 9mFY01 Change
    Sales 6,139 5,448 -11.3%
    Other Income 16 91 464.0%
    Expenditure 5,535 4,991 -9.8%
    Operating Profit (EBDIT) 605 457 -24.4%
    Operating Profit Margin (%) 9.8% 8.4%  
    Interest 148 166 11.7%
    Depreciation 48 64 33.5%
    Profit before Tax 425 319 -25.0%
    Tax 77 48 -37.5%
    Profit after Tax/(Loss) 348 271 -22.3%
    Net profit margin (%) 5.7% 5.0%  
    No. of Shares (eoy) (m) 7.0 7.0  
    Diluted number of shares 7.0 7.0  
    Earnings per share* 66.1 51.4  

    The slow down in the economy and a less than average monsoon has not augured well for the company as well as for the consumer durable sector. While B&W TV sales have dropped by more than 20%, CTV sales have declined by 10%-12% in FY01. This was in contrast against the trend witnessed in FY00 when CTV sales rose from 3.7 m sets in FY99 to 4.7 m sets, a growth of 27%. Though sales grew by 7.6% in 2QFY01 for MIRC, sales in the third quarter have dropped by 13.1% in the third quarter to Rs 2,163 m. Given the fact that the third quarter is the festive season, where TV sales usually tend to increase, the drop in sales puts forth the prevailing demand scenario. As a result, fourth quarter results are not expected to be encouraging in light of the earthquake in Gujarat.

    Despite a 9.8% drop in expenses, operating profit has declined by 24.4% to Rs 457 m in 9mFY01. The decline in operating margins was expected as TV companies have slashed prices during the year to boost sales. An annual decline of 3%-4% in realisations is the norm in the Indian TV market.

    The sharp rise in other income to Rs 91 m however, has prevented the net profit from a sharp fall. Profits have fallen by 22.3% to Rs 271 in 9mFY01. If one were to exclude the other income component, net profit for the first nine months has declined by 45.8%. We expect the slide in margins and profits to continue in the fourth quarter too, in light of perturbing volume growth and competition, which the domestic TV manufacturers are undergoing currently.

    However, the critical factor for television companies is to penetrate the rural markets with base models like 14, 20 and 21 inches TVs and upgrade the existing models in the urban markets. This is important to boost growth because India is a heterogenous market where penetration levels have wide variations. To put things in perspective, penetration level of TVs in Delhi is around 50% and it is less than 3% in Bihar. The seven metro cities account only for 30% of the total CTV offtake and the rest is contributed by the rural markets. Though MIRC has a strong brand (Onida) and product portfolio, the company does not have wide distribution network unlike its close competitors like BPL and Philips. This has also hampered growth due to its predominantly urban focus.

    The scrip is currently trading at Rs 504 at a P/E multiple of 9.8x the annualised nine months earnings.



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