Jul 3, 2001|
Kodak: Taken on for a ride
One of the key losers on the bourses over the last one year is Kodak India. After touching its 52-week high of Rs 584 in February 2001, the scrip is currently trading at around Rs 200 levels, a decline of more than 66%. What has prompted the markets to react so adversely given the fact that the company is one of the market leaders in the film roll segment and has strong technological support from its parent company?
The company’s core raw materials i.e. processing materials, films and chemicals, till FY00, was primarily imported. As a result, whenever the rupee depreciates sharply, Kodak suffers because of higher input costs, thus affecting operating margins. Though the operating margin of the company is on the rise, the fluctuations in input cost has hindered higher profit growth at the operating level.
To stem this fluctuations, the company had set up a colour negative paper manufacturing plant at Hetauda, Nepal, which was commissioned in September 1999 from where the core raw material was intended to be imported. However, the company could not source the negative paper from Nepal as it was unable to obtain the Certificate of Origin from the Nepal government on time. The impact is apparent from the first quarter results of the company in the current year.
|Cost of sales
|Change in operating profit
Kodak reported a sharp 74.7% decline in net profits to Rs 31 m as against a net profit of Rs 121 m in 1QFY01. The company has said that the change in product mix, exchange fluctuations and increase in duties in imported films in the current Budget have suppressed margins significantly. The drop in profits would have been higher but for lower interest and depreciation charges, which were lower by 56% respectively.
Another worrying fact is the 0.9% decline in sales to Rs 1,689 m in 1QFY02. If one were to take a closer look at the sales mix of the company over the last four years, contribution from film based revenues have come down from 62.2% of sales in FY98 to 51.2% of sales in FY01. On the other hand, contribution from processing and cameras have more than doubled (7.3% in FY98 to 14.9% in FY01). Since these are typically high-volume-low-margins business, overall margins have suffered.
But on the positive side, the company has also been installing film processing machines in an effort to push sales recently (this also derives lease rentals, which is incremental income for Kodak). Besides, Kodak has introduced new cameras targeted at the motion picture and health imaging industry, where Eastman Kodak (the parent company) is the market leader.
The scrip is currently trading at Rs 197 at a P/E multiple of 18.1x on annualised 1QFY02 earnings. But based on the earnings of FY01, the scrip is trading at 6.4x times. The company could witness a re-rating on the bourses if it manages to receive the certificate of origin from the Nepal government, against which Kodak has filed a writ petition.
More Views on News
Sorry! There are no related views on news for this company/sector.
Aug 17, 2017
A small-cap Indian company with high-return potential and blue-chip-like stability is set to supplant the Chinese players in this niche segment.
Aug 21, 2017
Most Indians who cannot find jobs, look at becoming self-employed.
Aug 16, 2017
The IT Sector could be in an uptrend till February 2019. Are you prepared to ride the trend?
Aug 22, 2017
Post demonetisation, a cut in bank savings deposits rates was in the offing.
Aug 16, 2017
Ensure your financial Independence, and pledge to start the journey towards financial freedom today!
Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement. LEGAL DISCLAIMER:
Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here
. The performance data quoted represents past performance and does not guarantee future results.SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.
Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: email@example.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407