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Kodak: Turbulent times - Views on News from Equitymaster
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  • Aug 2, 2001

    Kodak: Turbulent times

    Kodak India's sorry story continues. The company has reported a 75.4% drop in net profits on the back of a sharp fall in operating margins for the second quarter ended 30th June 2001.

    (Rs m) 2QFY01 2QFY02 Change 1HFY01 1HFY02 Change
    Sales 1,779 2,017 13.4% 3,483 3,706 6.4%
    Other Income 13 4 -66.1% 28 9 -68.3%
    Expenditure 1,548 1,927 24.5% 2,988 3,546 18.7%
    Operating Profit (EBDIT) 232 89 -61.4% 495 160 -67.8%
    Operating Profit Margin (%) 13.0% 4.4%   14.2% 4.3%  
    Interest 8 4 -53.6% 19 8 -55.1%
    Depreciation 33 22 -35.0% 79 41 -47.5%
    Profit before Tax 203 68 -66.4% 425 119 -72.1%
    Extraordinary item (10) (13) 25.0% (20) (13) -37.5%
    Tax 90 30 -66.2% 182 50 -72.3%
    Profit after Tax/(Loss) 103 25 -75.4% 223 56 -75.0%
    Net profit margin (%) 5.8% 1.3%   6.4% 1.5%  
    No. of Shares (eoy) (m) 11.2 11.2   11.2 11.2  
    Diluted number of shares 11.2 11.2   11.2 11.2  
    Earnings per share (Rs)* 36.7 9.0   39.9 10.0  
    (* annualised)            

    Though sales have increased by 13.4% in 2QFY02, margins have taken a pounding. The reasons are multi-fold. The company had set up a film roll manufacturing plant in Nepal in FY00 to prevent the profitability from taking a hit whenever rupee depreciates (the company earlier used to import film roll and as a result rupee depreciation was affecting margins). However, Kodak did not obtain the certificate of origin from the Nepal government in time and as a result it continues to import. Therefore, margins continue to remain strained on account of higher raw material costs, exchange fluctuations, hike in customs duty on film rolls, change in product mix and subdued demand scenario in the economy.

    However, Kodak has managed reduce its interest and depreciation charges both in the second quarter as well as in the first half, which has prevented the bottomline from a huge drop. Net profit for the first half of the current financial year has fallen by 75% to Rs 56 m.

    The bourses have reacted very sharply to the recent trends and this is apparent from the fact that the scrip has come off almost 71% in the last seven months. Kodak is currently trading at Rs 168 at a P/E multiple of 16.8x the annualised 2QFY02 earnings. The growth prospects predominantly lie in obtaining the certificate of origin for Nepal operations. However, the recent political unrest in Nepal has further alleviated problems for the company.



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