From THE HINDU group of publications
Sunday, July 29, 2001


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Indo Matsushita Carbon Company: Buy

Recommendation: Buy

B. Krishnakumar

The company is the largest manufacturer of carbon rods -- critical components used in the manufacture of dry cell batteries. It is a dominant player in the industry, and its clientele includes dry cell majors such as Indo National, Matshushita Lakhanpal and Eveready Industries.

Indo Matsushita Carbon performance over the recent years has been marked by a steady growth phase. Much of the improvement in performance is attributable to the robust demand for dry cell batteries during the latter half of the previous decade. The increase in usage of cameras, quartz wall clocks and television sets with a remote control unit has translated into a steady flow of demand for batteries. This, in turn, has impacted positively on the demand for carbon rods.

Apart from the growth in demand, implementation of well-planned capacity expansion projects has also played a role in driving the revenues. A combination of these factors helped Indo Matsushita Carbon (IMCC) post a steady performance till 1999-2000. However, the performance in the previous fiscal was affected on account of a few aspects.

The demand dry-up for dry cell batteries (on account of the sub-normal growth in agricultural and economic output), coupled with the influx of cheaper Chinese batteries affected the production of batteries. On the other hand, the depreciation in the rupee's value and the firm trend in crude oil prices pushed up the cost of inputs. Though the company effected price hikes, the company's financials was affected due to rising input costs.

As a result, the turnover declined about 14 per cent to Rs 37.16 crore while the post-tax earnings decreased about 15 per cent to Rs 5.74 crore. On the equity base of Rs 4.8 crore, the per share earnings works out to Rs 11.95.

However, fundamentals in the battery industry improved of late. The imposition of anti-dumping duty on dry cell batteries and the steady progress of the monsoon has resulted in increased production of dry cell batteries. This would have some positive impact on IMCC's financials as well. Moreover, the crude oil prices have also eased from the highs recorded during 2000, which could push input costs to lower levels.

Taking into account these factors, IMCC's performance could improve this fiscal. Considering strong fundamentals, dominant presence in the industry and the healthy dividend payout, long-term investors could consider equity exposure in IMCC.

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