Keeping the mutlinationals at bay - Views on News from Equitymaster

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Keeping the mutlinationals at bay

May 27, 2000

This is one Indian company that has withstood competition from multinationals. Be it durables or telecom services, BPL Limited is setting the standards across the board.

BPL is one of the largest diversified conglomerates in India. It has 9 manufacturing units and 39 offices in India and employs more than 3,300 people. It has relationships with foreign partners like Sanyo, Toshiba, France Telecom, Siemens and US West (now known as Media One).

The company has strong retail network in the country with 52 galleries, 240 exclusive showrooms and 229 service centres. Its retail distribution network extends to over 7,000 outlets. BPL has led the market by offering superior performance and features, which have helped in expanding its market share.

Market Share Overall FY99
Refrigerators 5.0%
Washing Machines 22.0%
Television 25.0%

The group perceives itself not as a maker of hardware - colour televisions, washing machines, vacuum cleaners - or a provider of mobile telephony services but as being in the `consumer business,' using a strong consumer brand to attain leadership in its operational environment; using it's `consumer franchise' to enter and dominate the emerging `convergence space.'

Financial year 2000 has been very good for BPL Limited. BPL's colour television (CTV) sales crossed the one million mark and touched 1.12 million sets. Considering the stiff competition in CTV market, these figures are certainly impressive. In terms of volumes, exports of CTVs showed an impressive jump of 165 percent in the first nine months. BPL's alkaline battery sales also showed an improvement of 51.4 percent in terms of volume.

As for profit margins, there has been an improvement in operating profit margins. While OPM during the third quarter stood at 8.7 percent, for the first nine months, OPM stood at 9.0 percent compared to the last year's figure of 8.3 percent. The company performed well on the cost front. The net profit stood at Rs 280 million in the third quarter, whereas profit for the first nine month stood at Rs 773 million for financial year 2000, up by 10.7 percent.

Leading the Pack...
Products FY98 FY99 Change
Colour Television &
Home Theatre Systems
626,981 824,968 32.0%
Home Appliances 261,699 350,889 34.0%
Black & white television sets 558,804 595,106 6.0%
Refrigerators 109,599 165,783 51.0%
Audio Systems 830,139 880,695 6.0%
Total 2,387,222 2,817,441 18.0%

BPL Limited intends to sell 2 million sets annually by financial year 2001. To meet its increased sales projection, the company is scaling up manufacturing facilities, especially in the north. The company has also planned to increase the number of retails outlets and distribution network to cater more towns for greater market reach.

It is pertinent to note that the downturn in the fortunes of several consumer electronic companies cannot be solely attributed to the cyclical trends and the overall decline in the economy. It is also due to the entry of the multinationals, which are giving established Indian majors such as BPL, Videocon a run for their money. To counter competition the company has had to spend additionally on the selling front like dealer discounts and advertisement, which has its effect in its margins in the past.

A survey by market research agency ORG shows that while the market share of BPL remains more or less static at 19.4 percent compared with 19.8 percent during January-March 1998, the multinationals are gaining considerably.

The other apprehension is the diversified businesses of the group. Apart from home appliances, mobile telephony services, the group has ventured into power and telecom. These are very much capital intensive businesses and require large-scale investments. This could have a telling effect on the company since BPL limited itself is a working capital intensive business.

The advent of the Internet and multinational competition is likely to change the face of the Indian market in coming years. BPL's management has shown its proactive approach in taking on important issues in the past. Already it is talking of 'convergence'. Whether it will emerge as a winner after the Internet has taken over the Indian market place cannot be said with certainty. But given the company's track record, one should not discount the group as yet.

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