"We will be debt-free by mid-2004"

SMART TALK/G.SUNDAR, COO, MIRC ELECTRONICS

Mumbai-based Mirc Electronics is one of the leading players in the television segment. The company has been in the news of late with US retail giants like Dickson and Wal-Mart being in talks with the company to outsource components and finished products after the imposition of anti-dumping duty on Chinese TV imports into the US.

Mirc Electronics posted a net profit of Rs 14.22 crore for the quarter ended December 31, 2003, down 32.54 per cent compared to Rs 21.08 crore for the same quarter last year.

Total income (net of excise) increased 14 per cent to Rs 302.31 crore in the quarter from Rs 264.18 crore in the December quarter of 2002. The stock trades at Rs 31 on the BSE at a P/E of 8.26x.

G. Sundar, chief operating officer of Mirc Electronics, speaks on future plans and market prospects:

The latest results have been disappointing for Mirc with profitability taking a hit. What do you attribute this to?
We have seen a hit in profitability because of various factors including investments of almost Rs 12 crore in promotion of our new washing machine and air conditioners segment.

There was also an element of price erosion that our products in the new segments took. However, this is a temporary phase and we expect the trend to be reversed in early part of next year.

What strategy has Mirc followed to maintain its market-share amid competition?
We have done well to resist the onslaught from MNCs and maintain margins. We have stayed away from the price game and created strong sub brands like KY Thunder for sound and Black for picture and Candy for the youth.

What has been the formula for maintaining margins and topline growth?
We have maintained a fine balance between price and market-share. At the same time we have made our organisation very lean by reducing interest on a q-o-q and y-o-y basis. Our volumes have doubled from Rs 400 crore in 1998 to around Rs 900 crore in 2003.

But the interest component has come down dramatically. We expect to be debt free by the middle of 2004. Our interest and depreciation are the lowest in the industry.

That facilitates us to have a greater amount of flexibility and anoeuvrability in the market-place.

How successful has the company been in meeting its targets?
We haven't exceeded our targets because we have had to bear the onslaught of players like Akai, which led to substantial price erosion (now there is the Korean onslaught).

But for these, we could have achieved higher and more healthier margins. Our foray in terms of the IGO brand has done well. In the prime target market, it is among the top three brands in the 14-inch TV segment.

Mirc has positioned itself as a multi-product durables player with its entry into under-penetrated categories such as washing machines and air conditioners. What is the prognosis on this front?
We have made significant progress in washing machines. Our market-share has increased from 2.8 per cent at the beginning of 2003 to 5 per cent as on November 30, 2003.

We launched a new campaign based on the proposition of 'power of water' (hydroshakti). It has increased awareness of ONIDA washing machines among consumers. We have established ourselves in air conditioners, too, after improving sales service and infrastructure.

Television seems to be your focus area. How is the scope for growth in the segment going forward?
We are primarily a television company and would like to be so for some time because there still exists a huge potential for growth in the television segment in the country.

There are three reasons for this. Firstly, the prices of TVs coming down by approximately 10 per cent year after year, aided by reduction of duties and taxes.

Secondly, India is a nation where cinema and cricket are strong passions. Most importantly, the quality of software (programme content) is by far one of the best in the world and, more importantly, available at very affordable prices, which range between Rs 150-200.

For a $5 monthly rental, you would not find a bouquet of over 100 channels anywhere in the world. That is the key driver for television. Besides, if you look at the penetration of TVs in India, it is just about 12-13 per cent.

How is the export scenario poised?
One of the visions that we have is to make ONIDA a global brand and wear the 'made in India' label proudly. We have identified Russia as a major market as it is still in a nascent stage without many brands.

We see a lot of potential by being one of the new entrants in Russia. We have done most of tour initial exports there and have sold about 25,000 sets.

We expect to set up a manufacturing unit there and bring in the kind of technology which suits their requirements. Once we prove successful in Russia, we will try to spread our success to Europe and the rest of the world.

Would you ideally be known as a low-cost producer via mass marketing or are you looking to build ONIDA as a brand?
We would definitely take the route of building ONIDA as an innovative and maverick brand. That would involve a greater amount of capital outlay, but that is the only way to grow profitably.

In the other case, initial surge of volumes occur , but eventually the profits taper. And growth without profits is not sustainable.

With India being a sourcing base for international players, does Mirc have any plans in this regard?
Mirc Electronics is one of the lowest-cost producers in the world. That way we are poised rightly to encash on such opportunities. That can have a substantial impact on our topline and bottomline.

Have you got any capex plans?
Most of our capex expenses have been taken care of and there is not much capex on the anvil. We have spent Rs 75-80 crore for capex in the last few years, primarily funded out of our internal accruals.

We have enhanced the capacity at our Wada plant which is good enough to take care of the current demand and any further ramping up can be done easily there.

What are the projections on the future growth?
The last year has been a bumper year for us. We expect to see a surge next year, buoyed by the accelerated spending on consumer durables, especially in the rural market.

When the penetration is as low as 12-13 per cent your propensity to grow is very high. The TV industry is currently poised to touch 7.5 million sets by March 2004.

I see the ensuing boom to result in total industry sales of 20 million in three years. Mirc will be a significant beneficiary of this.