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MIRC Betting on the idiot box - Views on News from Equitymaster
 
 
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  • Oct 6, 2000

    MIRC Betting on the idiot box

    One of the prominent players in the television segment is MIRC Electronics. The company commands a 12% market share. Despite the company posting 70% rise in net profit for FY00, the prospects continue to remain bleak.

    Realisation has fallen by as much as 5% in the television segment which accounts for more than 60% of sales. This is expected to continue given the competitive nature of the industry. Moreover, as prices of televisions, audio systems and washing machines have fallen drastically in the last two years dealer margins are shrinking, which would force the company to offer additional discounts and rebates to dealers. Besides, the company imports almost 32% of its raw material requirements (components and accessories). With prices of glass made products moving up sharply in the global market coupled with rupee depreciation means that margins are expected not to show any notable improvement.

    Sales mix
    (Rs) Manufactured Traded goods
      FY99* FY00 FY99 FY00
    Television 12,102 11,533 3,738 3,975
    Realisation growth   -4.7%   6.3%
    VCP/VCR 11,481 11,256 - -
    Realisation growth   -2.0% - -
    Washing machines - - 7,035 7,011
    Realisation growth - -   -0.3%
    Audio 12,111 7,066 815 337
    Realisation growth   -41.7%   -58.7%
    Total sales 3,675 4,235 3,211 3,737
    % of total sales 53.4% 53.1% 46.6% 46.9%

    * price refers to average unit realisation

    Moreover, one of the biggest disadvantages is that MIRC Electronics has just one product catering to one specific segment i.e. television (washing machines accounts for just 2% of total sales). Added to these woes are the reports of deficient rainfall in Gujarat, Rajasthan and Madhya Pradesh. Deficit rainfall would result in a average harvest, which in turn would lead to lesser income and spending power.

    Despite these, one of the biggest strength apart from Rs 6 bn Onida brand is its distribution network. MIRC has 8,500 dealers (direct and indirect) with sales per dealer moving up sharply from Rs 19 m (5,000 dealers) in FY96 to Rs 55 m in FY00. Further, It has planned to increase the proportion of institutional sales in the coming year (5% in FY00) which should boost volumes. Another factor that has cheered sentiment is the rising contribution from the 29 inch segment. The company is launching 3 new colour television models with prices ranging from Rs 25,000 to Rs 75,000 to exploit the opportunities in this market.

    In spite of having strong brand equity and distribution network, it remains to be seen how the company manages to tackle these challenges.

    The stock is currently trading at Rs 544 at a P/E multiple of 8.3x on FY00 earnings. Market capitalisation to sales ratio works out to be 0.48 (Market cap Rs 3,822 m)

     

     

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