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.
FCI OEN Connectors: Connecting all too well to H.O. - Outside View
FCI OEN Connectors: Connecting all too well to H.O.

Any stockmarket listed manufacturing entity incorporated in Kerala and having its manufacturing facilities and head office within its confines, and which continues to prosper, and which celebrates the 28th year of its existence deserves nothing short of a Noble Peace Prize, or some such equivalent. Ok, the company has a 2nd manufacturing facility at Bangalore, but the latter facility came up much later. Originally a 100% Indian owned enterprise it went in for financial and technical collaboration with Framatone Connectors of France (now FCI) in the late 1980s, with the collaborators holding a minority stake. But thanks to the subsequent 'benevolent' attitude of the descendants of the original Indian promoters, (it couldn't be only because of the technology benefits on offer) the collaborators were able to muscle in quite easily over time, and today hold over 97% of the outstanding equity stake.

The company's shares are currently delisted for trading as the French principal slowly nibbles away at the balance 3% minority Indian shareholding. It has also stopped paying any dividend under questionable guises, probably also in the hope of coaxing reluctant minority shareholders to exit in the process. For the matter of record the company manufactures a whole gamut of connectors used by telecom switching and transmission equipment manufacturers, and the industrial equipment manufacturing sector, along with accessories and cable assemblies.

The principal's writ runs riot over the company and the impotent subsidiary jiggles to the parent's tunes. It appears to import just about every nitty gritty that a company could possibly think of importing. From raw materials, to components, to capital goods, to machinery spares, tools and consumables. Not to mention the imported value of traded goods. On the face of it the company appears to have a made a thumping profit in the purchase / sale of traded goods. A profit of Rs 41.8 m in 2009 (Rs 19.2 m) or there-abouts. It also pays out sums on trademark royalties, patent costs, management fees, and information system support expenses - all of it presumably pays to its principals.

The company lent Rs 350 m to a group affiliate on which it earned an 8% interest return in 2009. FCI OEN has no equity stake in the group affiliate, and the latter is probably owned by the parent. With the parent getting returns like this every which way, what's wrong in turning off the dividend spigot. The company also makes profits. It also made a pre- tax profit of Rs 37.9 min 2009 (Rs 35.9 m) on a turnover including 'other income' of Rs 2.7 bn (Rs 2.6 bn).

But it is the composition of 'other income' which catches the eye. Other income for 2009 stood at Rs 263 m (Rs 299 m). Of this, export entitlements and sale of scrap (which should really be classified under sales) brought in Rs 190m (Rs 209 m) respectively. Suffice to say that, if the export entitlements were not available and if there was no scrap sales, the company may well have been deep in hock. The point is that export entitlements and scrap sales are indeterminate and also depend on government policies and, the efficiency of the manufacturing process, and the difficulty in predicting scrap sale prices. Add to this the profits made on traded sales and the picture gets a little bizarre. Or, is there a method in this madness?

The company continues to chug along in this setting and, inspite of the bulk of the production being exported, apparently to its affiliates, it has to give considerable dollops of trade credit to realize the sale proceeds, and in the process got whacked in the forex front also.There was also a marked shift in inputs consumed and the output volume was significantly lower by 30% at 83 m pieces. But the company generated a significantly higher price of Rs 23.4 (Rs 13.3) per connector sold. Sales of connectors bringing in almost 90% of all rupee sales. Probably the company switched to higher value connectors or some such. There was also a 39% drop in the value of cable assemblies sold, at Rs 206 m.

So is it the efficiencies in the manufacturing processes of the Indian subsidiary that allows FCI OEN to grow and prosper, or does it do so by getting a leg up by other means?

Disclosure: Please note that I am not a shareholder of this company

This column "Cool Hand Luke" is written by Luke Verghese. Luke has been a business journalist, financial analyst and knowledge management head with a professional experience of more than 20 years. An avid watcher of the stock market, he has written extensively on stock market trends. His articles have featured in Business Standard, Financial Express and Fortune India amongst others. He has also been the Deputy Editor, Fortune India and the Financial Editor of The Business and Political Observer.

The views mentioned above are of the author only. Data and charts, if used, in the article have been sourced from available information and have not been authenticated by any statutory authority. The author and Equitymaster do not claim it to be accurate nor accept any responsibility for the same. The views constitute only the opinions and do not constitute any guidelines or recommendation on any course of action to be followed by the reader. Please read the detailed Terms of Use of the web site.
Equitymaster Agora Research Private Limited


Equitymaster requests your view! Post a comment on "FCI OEN Connectors: Connecting all too well to H.O.". Click here!


More Views on News

Securities & Intelligence Services Ltd. (IPO)

Jul 31, 2017

Should you subscribe to the IPO of Securities & Intelligence Services Ltd?

Why Super Investors are Underperforming in This Market (The 5 Minute Wrapup)

Jul 8, 2017

If Super Investors can wait for the right pitch, so can you.

Tejas Networks Ltd. (IPO)

Jun 14, 2017

Should you subscribe to the IPO of Tejas Networks Ltd?

Discover the Secrets of Hidden Smallcaps From These AGMs (The 5 Minute Wrapup)

May 26, 2017

Don't be surprised to come across some Super Investors there!

A Trader's Nightmare. A Business Owner's Delight. (The 5 Minute Wrapup)

May 19, 2017

Not all small-cap investors see themselves as traders. Some see themselves as business owners.

More Views on News

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.

Proxy Plays: A Smart Way to Bet on 'Off Limits' Companies(The 5 Minute Wrapup)

Aug 4, 2017

The small-cap space is full of small players that are clear proxies to great growth stories and Indian megatrends.

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...


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


Sep 7, 2007 (Close)


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