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MIRC: Dwindling profits - Views on News from Equitymaster
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  • Jul 27, 2001

    MIRC: Dwindling profits

    MIRC Electronics, the makers of the Onida range of televisions, has posted a sharp 42.3% drop in net profits for the first quarter ended 30th June 2001. Sales in 1QFY01 has also witnessed a marginal drop by 1.8% to Rs 1,248 m.

    (Rs m) 1QFY01 1QFY02 Change
    Sales 1,271 1,248 -1.8%
    Other Income 0 4 800.0%
    Expenditure 1,163 1,156 -0.6%
    Operating Profit (EBDIT) 108 93 -14.5%
    Operating Profit Margin (%) 8.5% 7.4%  
    Interest 41 46 13.6%
    Depreciation 18 21 20.6%
    Profit before Tax 51 29 -42.5%
    Tax 8 5  
    Profit after Tax/(Loss) 43 25 -42.3%
    Net profit margin (%) 3.4% 2.0%  
    No. of Shares (eoy) (m) 7.0 7.0  
    Diluted number of shares 7.0 7.0  
    Earnings per share (Rs)* 24.4 14.1  

    The fall in sales was expected given the the subdued demand scenario of TVs. The severity of competition after the entry of the Korean multinationals has also not done any good to the company’s topline growth. As per the recent estimates, MIRC has witnessed a drop in market share in the 21' inches segment in the first quarter of the current financial year (this segment contributes to almost half of the industry volumes). Besides, demand of TV sets generally tend to be on the higher side in the second of the year.

    Though operating expenses have fallen by 14.5% to Rs 93 m, pricing pressure and decline in market share has resulted in a 90 basis points fall in operating margins to 7.4% in 1QFY02. Raw material costs as a percentage of sales has fallen from 79.3% in 1QFY01 to 64.2% in 1QFY02. Similarly other expenses as a percentage of sales has come down by 20 basis points to 18.2% in the aforesaid quarter.

    Though other income has gone up sharply, higher interest and depreciation charges have further subdued profit growth. Excluding the other income component, net profit has almost halved in 1QFY02.

    The scrip is currently trading at Rs 158 at a P/E multiple of 11.2x the annualised first quarter earnings. The dismal performance of the company has resulted in a free fall on the bourses. The scrip has fallen by 69% since May 2001and prospects for the rest of the year is also not promising. Margins might continue to remain strained as the consumer association expects a 10% degrowth in CTV sales in the current financial year. Though monsoons are expected to be good, it remains to be as to how much does it help in improving sales in the coming quarters.



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