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BPL – The reward for priorities… - Views on News from Equitymaster
 
 
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  • Sep 28, 2000

    BPL – The reward for priorities…

    BPL Limited is among the top losers over the year in BSE National Index, in terms of market capitalisation. The erosion is a whopping Rs 10 bn! The share price has come down from a high of Rs 534 (27th September 1999) to Rs 138 currently. What could be the rational behind this large value erosion?

    BPL is the market leader with 26% share in colour television segment. It also manufacturers refrigerators, alkaline batteries (exported to Japan), home appliances and audio systems. In spite of sales growth slowing down from 38% in FY98 to 4% in FY00, operating margins have been faring well for three consecutive years (prices of colour televisions have halved in last three years). Since it is has gone for backward integration, BPL has a clear cost advantage over its competitors as almost 75% of its raw material requirements are met internally. Moreover, contributions from high-end digital products, in the sales mix, are on the rise (It has a range of colour televisions starting from Rs 8,000 to Rs 75,000).

    Consistent performance…
    (Rs m) FY98 FY99 FY00
    Gross sales 17,461 19,397 20,147
    % growth 35.7% 11.1% 3.9%
    Other income 27 8 3
    Gross profit 1,473 1,747 1,930
    GPM (%) 8.4% 9.0% 9.6%
    Depreciation 153 212 260
    Interest 424 404 485
    Profit before tax 923 1,140 1,188
    Tax 67 115 117
    Profit after tax 856 1,025 1,071
    NPM (%) 4.9% 5.3% 5.3%
    Number of shares 28 28 28
    EPS 31 37 39

    The reason for the erosion in value is that BPL is a conglomerate with diversified interest in various sectors including consumer durables, power, telecom, mobile telephony, Internet and home appliances. In fact, the company has floated separate companies for different joint ventures, though the core areas of these businesses are competitive in nature (for BPL). The list of companies includes BPL Sanyo Technologies, BPL Refrigerators, BPL Sanyo and BPL Engineering, to name a few. Added to the woes, these companies are losing market share steadily over the last three years.

    Market share FY97 FY98 FY99
    BPL Refrigeration (refrigerators) 13.9% 9.7% 6.9%
    BPL Sanyo Utilities (washing machines) 28.4% 15.6% 11.7%
    BPL Sanyo Technologies (audio) 14.1% 11.6% 10.3%

    Source: CMIE


    Valuations
    Valuations FY98 FY99 FY00
    Market price (Rs)* 142 534 139
    P/E 4.60 14.43 3.60
    Market cap (Rs m) 3,933 14,792 3,850
    Market cap/sales 0.23 0.76 0.19
    *price as on September 27th of the respective year

    Clearly, the group lacks focus. The ‘reward’ for this lack of focus is the huge erosion in market capitalisation. The best solution for the company is to move out these businesses and focus on its core areas through BPL Limited. Only then, investors would ‘believe in the best’.

     

     

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