February 27: The BPL scrip no longer suffers from meagre discounting. The change in market perception could be partly attributed to Harshad Mehta's recommendation on the Internet a few months ago. The stock, which was quoting at Rs 55 in July last year, touched a 30-month high of Rs 127 on Friday. At the same time, volumes also touched an all-time high of 6.69 lakh shares, up from a daily average of around 3,000 shares in the first half of 1997.But the rise in the share price cannot be attributed to the Big Bull factor alone, it is also due to the fact that the company has shown an impressive performance. Although the annual results of 1996-97 gave enough indication of an improved performance, the first-half results for 1997-98 confirmed the company's competitive strengths. For the six months ended September, 1997, sales were up 29 per cent to Rs 784.31 crore. Operating profits recorded an impressive jump of 53 per cent, up from Rs 41.11 crore to Rs 63.17 crore. As a result, operating profit margins alsomoved up from 6.79 per cent to 8.05 per cent. Profits at the net level have also improved, but at a lower pace, mainly on account of higher interest burden, depreciation and tax provisions.Indications of a better performance were already evident in the annual results of 1996-97. The company's profits stagnated in 1996-97, but compared with other players, the results were very impressive. When most of the players in the colour television sector were hit badly, BPL not only maintained its operating margins but also improved them. Operating profit margins stood at 7.28 per cent, up from 7.07 per cent in 1995-96.
Although the colour television sector grew at a very slow pace in 1996-97, BPL managed to grab an extra slice of the domestic market. From a level of 27.83 per cent (sales of 4.73 lakh units), the company's marketshare increased to 30.7 per cent (sales 5.23 lakh units). This gain becomes more significant if one were to take into account the increasing competition on account of the entry of foreignplayers like Sony, National, Toshiba, Akai, Thomson, Goldstar and Samsung. In fact, even in the scenario of "buy one get one free" schemes, BPL has managed to raise its average realisation on colour television sets by around Rs 450. Perhaps, this could be the reason why the company managed to increase its operating profit margins. Further, in a tough market environment, finished goods inventory came down from 41 days to 40 days.
One of the reasons for additional investor comfort was that the company specified that it stood committed to increasing shareholder value through dividend outflows, and, more importantly, through its policy of non-dilution of equity.
While good performance should positively affect the share price, the worrying factor is the pace at which the stock has been going up. The price-to-earnings (P/E) multiple for the stock has increased from a meagre 2.2 in July last year to the current level of 5.
For the future, though, the company has already proved itself by maintaining profitmargins which is a daunting task, given the slow growth in demand and the competition. The interest burden will continue to be higher. For the first half of 1997-98, the interest burden of the company moved up from Rs 9.96 crore to Rs 17.85 crore.
A depreciated rupee should also put some pressure on margins as the company imports a large part of its raw material requirements. During 1996-97, the company imported components/parts worth Rs 214 crore, accounting for 24 per cent of the expenditure.
From an investor's point of view, while the latest rally has been supported by substantial volumes, fresh commitments can be made only on declines.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
