Digital Equipment
With a new name following the global acquisition of its parent by Compaq, Digital looks promising despite a drop in margins. The results for the year ended June 1998, show a 24 per cent increase in turnover to Rs 350.57 crore but the net profit has grown 8.5 per cent only to Rs 27.38 crore. This could be attributed partly to exchange loss since 82 per cent of the raw material including components, stores and spares is imported and total expenditure has gone up 29 per cent.
The operating profit margin has actually gone down to 11.5 per cent from 15 per cent in previous year. The gross profit has gone down marginally by 0.7 per cent but the net profit is higher owing to lower provision for tax. This could be explained by the higher provision for depreciation which has gone up 50 per cent. Additional depreciation of Rs 3.18 crore is accounted by plant and machinery of discontinued products and revaluation of useful life of PCs etc.
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The sales increase has been driven by sales through channel partners of its desktops and servers. While Compaq is the largest domestic supplier of PCs, Digital's main strength is in its enterprise service business. So, the global merger will complement Compaq's Indian operations by selling and servicing Compaq machines. Globally, the parent is already a service provider for Compaq's machines. The Indian arm has also been identified as a major software base by the parent. In future, the company is expected to reap good results by drawing more strengths from the parent.
Kodak
Kodak has been filming a good performance and this is reflected in the six months results ended June 1998. New product launches have resulted in a topline growth of 22.7 per cent to Rs 262.63 crore. It launched the Kodak KB10 camera which is compact and priced at Rs 995 in late 1997. Apart from this, it has recently launched a product in the digital category called Kodak DC120 Zoom Digital Camera and also plans to introduce four new camera models in the Rs 2000 to Rs 5000 category. The camera population in India is estimated at 10-12 million growing at around 13 per cent annually. Thus, this growth is expected to be sustained for the rest of the year as well.
Contrarily, the net profit has grown by 21 per cent to Rs 4.99 crore only owing to the depreciation in the rupee since around 40 per cent of Kodak's finished goods is imported and 83 per cent of the processing materials, chemicals and cameras is imported. The profit would have been lower if the provision for contigencies worth Rs 4.55 crore were not written back since the VRS payments touched a high of Rs 4.4 crore.
The budget has however, come as a breather for the company since import duty on jumbo rolls has been slashed from 25 per cent to 10 per cent for cinematic films. One of its divisions, Kodak motion picture films will benefit from this considerably. Even for photographic chemicals drop in duties will reduce the input cost to some extent.
The company has been restructured extensively through voluntary retirement schemes and expansion of distribution network. From less than 10 distributors in 1994, it has gone up to 300 and the number of outlets have also been increased across the country. Around 33 per cent of the market share is with Kodak and with parent's increased interest the company is all set to gain a leadership position. But since its import content is high, the rupee depreciation will dampen bottomline growth. Investors can wait.
Sandvik Asia
With most user industries like automobiles, auto ancillaries, engineering and capital goods witnessing a continuous slowdown, Sandvik's performance was bound to be affected. In the first six months ended June 1998, on the sales front, Sandvik has had a flat growth. Sales have moved up marginally from Rs 62.45 crore to Rs 62.84 crore during the period while net profit has dropped 84 per cent. Against Rs 4.53 crore in the first half of 1997, its net profit has fallen to Rs 0.72 crore. It has attributed this steep fall to the ongoing restructuring exercise which is said to have resulted in an additional cost of Rs 3 crore during the period. This has affected the net profit to the same extent.
However, had the company not incurred this additional cost during the period it would have still ended up with a 17 per cent drop in net profit. The net profit was also buoyed up due to a lower tax provision during the period. As against Rs 2.44 crore in the first half of 1997, its tax provision stands at just Rs 0.39 crore in the current first half.
Sandvik's margins have also taken a severe beating with gross margins falling to 8.15 per cent from 12.11 per cent in 1997. The margins were affected last year as the company had changed its product mix from own manufactured goods to traded goods. The first half could have seen a continuation of this trend affecting margins further.
Early this year, Sandvik AB, the parent has increased its stake in the Indian arm to 73.22 per cent through an open offer. This move was driven by the parent's need to introduce its proprietary technology and know-how in Sandvik Asia. Though the company stands to gain from this move, but with the user industries not showing any signs of recovery it is unlikely that the company's performance will improve. Going by Sandvik's own estimates, its performance in 1998 could at best be at 1997 levels.
Shriram Honda
Shriram Honda, the market leader in diesel generating sets (DG sets) segment recorded a meagre growth in its topline. The company's net sales increased to Rs 39.11 crore for the first quarter of 1998-99 against Rs 37.67 crore in June 1997. Its total expenditure increased six per cent in tandem with sales to Rs 39.11 crore. So, the total expenditure to sales as a percentage increased to 81.10 per cent against 78.81 per cent last year. The net profit slipped by 18 per cent to Rs 5.05 crore.
The slide in the company's bottomline is attributed to the sluggish demand scenario. Although the company is increasingly focusing on rural areas where it initially met with a decent response, its performance has been flat since the last two years. It has a major presence in the north where demand has off late reached a saturation stage. But, it has managed to increase its market share from 61 per cent to 64 per cent in 1997-98. Birla Yamaha its neck-to-neck competitor commands the balance market share.
However, its bottomlines are under pressure as margins have started getting skewed. Net profit margin slipped to 12.91 per cent against 16.35 per cent. The company was forced to pass on discounts to its distributors in order to push sales, opine analysts. The other reason is attributed to its import content which is 48 per cent of its raw material requirements with the latter constituting 42 per cent of its net sales. In the first quarter of the current year the sliding of the rupee has further eaten into the margins.
In December 1997, its parent company Honda Motors bought out 10 per cent from Siddhartha Shriram at Rs 265 per share. This subsequently increased Honda Motors's stake to 66.66 per cent. The company is now being renamed to Honda SIEL Power Products. Avoid at present.