Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.

Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Carrier – Creditable turnaround - Views on News from Equitymaster
  • E-MAIL
  • A  A  A
  • Nov 6, 2000

    Carrier – Creditable turnaround

    Carrier Aircon had reported a disappointing performance in FY00. Sales had dropped by 5% and net profits by 68%. But a better quarterly performance and robust air conditioner sales has necessitated a re-look at the company.

    Manufacturing expenses as a percentage of sales shot up from 72% in FY99 to 84% in FY00. This was primarily because of non-recurring expenditures like to loss on sales of scrap arising out of fire at one of its factory. As a result, margins almost halved from 9.5% in FY99 to 4.5% in FY00. Besides, the company did not have enough inventories to meet demand due to labour problems at one of its manufacturing units.

    Half yearly performance
    (Rs m) 1QFY01 2QFY01 1HFY01
    Sales 1,512 1,001 2,513
    Other Income 3 29 32
    Expenditure 1,363 954 2,317
    Operating Profit (EBDIT) 149 47 196
    Operating Profit Margin (%) 9.9% 4.7% 7.8%
    Interest 11 14 25
    Depreciation 15 12 27
    Profit before Tax 126 50 176
    Tax 25 13 38
    Profit after Tax/(Loss) 101 37 138
    Net profit margin (%) 6.7% 3.7% 5.5%
    No. of Shares (eoy) (m) 23.4 23.4 23.4
    Diluted number of shares 23.4 23.4 23.4
    Diluted Earnings per share* 17.2 6.3 11.8

    But things have started to look up for the company. It has posted a notable improvement in both net profits as well as on margins in the first quarter of the current year. While net profits grew by 27% in 1QFY01, there was a 40 basis points improvement in margins. Since the first quarter has a significant impact on the overall performance of the company (being summer season when demand for air conditioners perks up), we expect margins to be around 7%-8% for the full year. In the second quarter, however, margins have dropped significantly (by 200 basis points) due to an abnormal rise in staff cost and sub-contracting charges.

    If we were to consider the half-yearly performance of the company, though net profits have dipped by 6%, the company has managed to post significant improvement in operating margins. With room air conditioner market growing at the rate of 30% per annum, as a market leader with good brands and distribution network, Carrier has an upper hand. Added to this, industrial air conditioner demand is expected to go up sharply thanks to the information technology boom. As more and more technology parks and personal computers are sold, air conditioner demand is likely to witness exponential growth in coming years.

    However, this segment is witnessing severe competition, particularly after the entry of the Korean multinationals like LG and Samsung. Besides, domestic majors like Voltas and Blue Star have aggressive plans for the retail sector. Voltas, in particular, is sitting on huge order book as an original equipment manufacturer for LG, Pepsi and other FMCG majors. Therefore, Carrier will have to face competition from retail as well as on the industrial customers.

    Besides, one is not very clear about the company’s strategy on the sub-contracting front. Sales via sub-contracting have gone up sharply by 2,000% in FY00 (realisations have been falling). This, when compared to a negative growth in manufactured sales (where realisations have gone up by 11% in FY00) does not seem to be a proper mix.

    The stock is currently trading at Rs 100 at a P/E multiple of 8.5x the annualised 1HFY01 earnings. On the annualised sales turnover of Rs 5,026, market capitalisation to sales works out to 0.5 (Market Capitalisation = Rs 2,340).



    Equitymaster requests your view! Post a comment on " Carrier – Creditable turnaround". Click here!


    More Views on News

    Sorry! There are no related views on news for this company/sector.

    Most Popular

    Demonetisation Barely Made Any Difference to Tax Collections(Vivek Kaul's Diary)

    Aug 7, 2017

    The data tells us quite a different story from the one the government is trying to project.

    A 'Backdoor' to Multibaggers: It's Like Investing in Asian Paints Ten Years Ago(The 5 Minute Wrapup)

    Aug 10, 2017

    Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.

    Should You Invest In Bharat-22 ETF? Know Here...(Outside View)

    Aug 8, 2017

    Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    7 Financial Gifts For Your Sister This Raksha Bandhan(Outside View)

    Aug 7, 2017

    Raksha Bandhan signifies the brother-sister bond. Here are 7 thoughtful financial gifts for sisters...

    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: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms


    • Track your investment in CARR.AIRCON with Equitymaster's Portfolio Tracker. Set live price alerts, get research alerts and more. Get access now...
    • Add To MyStocks