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BPL: Losing sheen - Views on News from Equitymaster
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  • Jun 15, 2001

    BPL: Losing sheen

    BPL Limited is set to announce its annual results today. The slow down in the economy coupled with subdued demand and competition has resulted in considerable decline in volumes in FY01. Sales have declined by more than 15% in the first nine months of FY01. Both margins and profit growth has also suffered on account of competitive market conditions.

    The sharp decline in turnover could be attributed to the transfer of some of its division to the associate companies. Turnover in FY00 includes the sale of audios, dry batteries and export of colour monitors, which are now being sold by its associate companies. This has also been one of the reasons for the scrips dismal performance on the bourses. BPL’s group companies namely, BPL Refrigeration and BPL-Sanyo, sell refrigerators, audio systems and alkaline batteries, which are some of BPL Limited’s core businesses. The complex group holding structure and lack of transparency has been a set back. Nevertheless, BPL has managed to sell more than 1 m television sets in the current year and as per the company’s press release it commands a market share of around 19%.

    But the performance of the company in the export market is also not encouraging. It had recorded an export turnover of Rs 910 m in the first nine months of FY01 as opposed to Rs 1,232 m in FY00, a decline of 26%. This could be attributed to the severity of competition in the international markets, especially from countries like Turkey and South East Asia. BPL recorded a 149% rise in CTV exports in FY00, where it seems it has taken a big hit. The same holds true for its colour monitor division also.

    Though it commands market leadership in the alkaline battery segment in South India, cheaper imports have flooded the domestic markets with the removal of quantitative restrictions. We expect an average of 20%-25% decline in realisations for the next three years in this division.

    Net profits for 1HFY01 also declined by 12% to Rs 413 m due to a sharp fall in operating margins from around 10.5% in FY00 to 9.7%. We expect a similar trend in the current year also as there seems to be no catalyst to boost demand. Though there is news of a normal monsoon, it will take time to reflect in terms of actual volume growth. Given the intensity of competition in the CTV segment, we expect BPL to lose market share.

    The stock has been hammered during the year after the market regulator, SEBI, enforced a ban on the company from raising money from the capital market in light of the stock market scam in FY97. BPL is currently trading at Rs 61, at a P/E multiple of 2.1x the annualized 3QFY01 earnings.



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