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Carrier: Losing sheen - Views on News from Equitymaster
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  • Nov 30, 2001

    Carrier: Losing sheen

    Carrier Aircon, one of the key players in the Indian air conditioner segment, continues to suffer on account of increasing competitive pressure and sluggish sales. While turnover has declined by 13.7% to Rs 1,824, the company has reported a net loss of Rs 103 m in 1HFY02 as compared with a profit of Rs 114 m over the corresponding period last year.

    (Rs m) 1HFY01 1HFY02 Change
    Net sales 2,113 1,824 -13.7%
    Other Income 32.0 27.6 -13.8%
    Expenditure 1,930 1,897 -1.7%
    Operating Profit (EBDIT) 183 (73) -139.9%
    Operating Profit Margin (%) 8.7% -4.0%  
    Interest 25 22 -10.3%
    Depreciation 34 42 23.6%
    Profit before Tax 157 -109 -169.8%
    Extraordinary items 0 -6  
    Tax 42 (12) -129.4%
    Profit after Tax/(Loss) 114 (103) -190.0%
    Net profit margin (%) 5.4% -5.6%  

    Air conditioner demand tends to be on the higher side in the first (April-June) and the fourth quarter (January-March) in light of the summer season. But the company recorded a 4% fall in sales in 1QFY02 and margins fell from 9.9% in 1QFY01 to 2.6% in 1QFY02. It failed to capitalise on the seasonal nature of the industry and consequently its market share has fallen. For one, competition is slowly eating into margins of the company and this combined with a sluggish demand scenario has had a significant impact on profits.

    Competition in the room airconditioner segment, which contributes close to 65% of Carrier's turnover, increased notably after the entry of Korean multinationals and aggressive ploy taken by domestic companies like Voltas. Besides the industry continues to remain fragmented, though excise duty, which was safeguarding regional players from organised players, has been on the decline. We expect the average realisation of room A/C's to fall by around 6% per annum for the company in the coming years. The only positives for the company are its brand, dealership and the technology backup by its parent, Carrier USA. Though the parent company seems committed in its Indian subsidiary, it had raised its stake to close to 86% through an open offer, it remains to be seen whether the company can buck the downturn and increase market share.

    Carrier is currently trading at Rs 88 on a P/E multiple of 30x FY02E earnings.



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