Things did not go well for Philips India in 1996. For the year ended December 1996, sales at Rs 1,485 crore, recorded a negative growth of more than two per cent "" for the first time in the last decade.
An overall slump in demand for consumer electronics coupled with labour problems at its Calcutta plant, which resulted in a production loss in the last quarter of 1996, were responsible for the decline.
The company also lost around three per cent market share in the audio systems segment. However, in other segments like lights and luminaries, colour and B&W televisions, home appliances and industrial electronics, Philips has maintained its market share.
A fall in sales and that too in the second half assumes importance because generally this period includes the festive season, when Philips records higher sales.
In terms of percentage, second half sales in 1996 stood at 52.5 per cent, much lower than the 56.5 per cent achieved in the previous year.
In fact, if one were to compare the profit figures of the second half with the first, the fall appears very steep.
Against a net profit of Rs 7.27 crore in the first half, the company has shown a net profit of only Rs 0.79 crore in the second half. The main reason has been the provision for extraordinary items (leave encashment of prior years) of Rs 5.3 crore.
As far as operating profits are concerned, there has been some improvement, mainly on account of the stable rupee and falling imports.
The percentage of imported raw material has fallen from around 45 per cent in 1995 to 40 per cent in 1996. As a result, margins at the operating level have improved from 5.24 per cent in 1995 to 5.39 per cent in 1996.
However, OPM has declined from 6.37 per cent in the first half to 4.52 per cent in the second half.
Increasing investments, coupled with a higher cost of borrowings, which resulted in a 61 per cent higher interest burden of Rs 43.8 crore, have made a hole in Philips pocket.
In the second half of 1996, the Philips India invested around Rs 70 crore for upgradation of its Pune facilities, apart from investments in the IT business.
The shelving of the Kota project to manufacture glass and lamps, also had its impact.
With no improvement in the industry trend, many analysts feel things may not improve at Philips in the near future.
However, with the shelving of the Kota project, and an improvement in working capital management, the company expects a lower interest burden in the current year. The labour problems at its Calcutta plants have also been solved.
But, the market may prefer to adopt a wait and watch policy for the scrip.
And this could be why the stock has been underperforming for quite some time.
ITW Signode
ITW Signode for the second consecutive year has failed to achieve projections made during its rights issue in October 1995.
For the year ended December 1996, the company could achieve a total income of only Rs 188.82 crore "" 23 per cent lower than the projected Rs 246.06 crore. Against the projected net profit of Rs 21.33 crore, the actuals were only Rs 11.88 crore "" short by 44 per cent.
ITWs performance has been far from impressive, especially in the second half.
The company states that the poor show is due to a slowdown in offtake in some segments of the industry which has resulted in reduced order flow.
However, sales growth at 24 per cent in 1996, has been higher than the 11 per cent recorded in 1995.
It is surprising that despite the prices of the companys main raw materials "" hot rolled coils and paper "" ruling at lower levels, it has registered a decline in profits at the operating level.
Operating profit margins declined from 21.05 per cent to 18.65 per cent.
This has been mainly due to an increase in administrative expenses like lease rentals and inter-plant communication expenses.
While other income remained high, ITW managed to control its interest burden at Rs 12.85 crore.
Funds raised through a Rs 18.48-crore rights (at a premium of Rs 70) in 1995 have also helped.
To bring down administrative expenses in future, especially rent on leased premises, the company plans to unite all 17 factories located in and around Hyderabad into three major units.
It has set up a plant at Silvassa and is putting up one more unit at Haldia in West Bengal to cover the western and eastern markets.
These cost cutting measures should help ITW.
