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BPL Feeling the pinch

Nov 10, 2000

BPL Limited, the flagship company of the BPL Group, is feeling the pinch of competition and slowdown in television sales in the current year. It has posted a 16% drop in net profits for the first half ended 30th September 2000. Though the company has posted an 18% growth in sales on QoQ basis (i.e. September ended quarter over quarter ended June 2000), on a YoY basis, sales have dipped by 6%. But operating margins have gone up by 70 basis points from 9.2% in 2QFY00 to 9.9% in 2QFY01. This, on the back of declining television and energy-cell prices, is a creditable performance.

However, prospects are not promising given the fact that monsoons have not fared well. This would lead to a lower agriculture output, which in turn would affect consumer propensity to spend. The impact is already apparent from surveys conducted by various organisations, which indicates that television sales have dropped by 6%-7% in the first half of the current year.

(Rs m) 1QFY01 2QFY01 Change
Sales 3,721 4,404 18.4%
Other Income - (7) -
Expenditure 3,371 3,966 17.7%
Operating Profit (EBDIT) 350 438 25.1%
Operating Profit Margin (%) 9.4% 9.9%  
Interest 79 111 40.5%
Depreciation 66 79 19.7%
Profit before Tax 205 241 17.6%
Tax 15 19 26.7%
Profit after Tax/(Loss) 190 222 16.8%
Net profit margin (%) 5.1% 5.0%  
Earnings per share* 18.6 21.7  
*(annualised)      

Keeping these factors in mind, we expect the company to post marginal increase in sales and a drop in net profits in FY01. Rising input costs and competition are more likely to pressurize realisations in the second half of FY01. This will have an adverse impact on overall margins. Colour picture tubes prices, for instances, are expected to go up by 6% in the current year due to rise in glass shelve prices. Besides, advertisement expenditure as a percentage of sales is 3.3% (Rs 630 m). We expect this to go up to 4% in FY01 (Rs 800 m). This would further cramp margins.

The stock is currently trading at Rs 142 at a P/E multiple of 6.5x the annualised 2QFY01 earnings.

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