Indian Summer offers sizzling investment ideas
Carrier Aircon
Carrier Aircon is a 51 per cent subsidiary of Carrier Corporation, USA and makes compressors and air conditioners. The parent company increased its stake to 51 per cent in 1993-94 from 40 per cent. Carrier is the number one global player in the heavy and applied segment of the business. The overall economic scenario in the industry has also hit AC manufacturers in 1998. Carrier's sales grew 18 per cent and net profit was up only 10 per cent to Rs 25.88 crore. This was despite a volume growth of 31 per cent for room air conditioners, 14 per cent in compressors and 28 per cent for split air conditioners. In order to counter the recession, Carrier plans to launch products to customers in various income groups.
The company has an excellent backing from the parent for technology and product improvement. During the second quarter of 1998, the company launched two new range of air conditioners - Europa range and the Carrier cassette split systems. It currently has a manufacturing capacity of 1.5 lakh units. The company is planning to increase its capacity to 2 lakh units in the union territory of Daman and Diu to avail of tax benefits.
Net sales in the first quarter (April-June 1998) was Rs 127 crore against Rs 278 crore for the whole year. Net profit during the same quarter stood at Rs 9 crore against Rs 26 crore the whole year. The current quarter April-June 1999 will be the best quarter for the company. In order to broadbase its product profile, Carrier has entered the chiller segment and plans to regularly launch new products. The Carrier scrip is constantly hovering in the range of Rs 190-220. At current levels, it remains a buy in the lower end of this range.
Electrolux Kelvinator
Electrolux Kelvinator (earlier Maharaja International) is owned by Electrolux of the US. Electrolux India introduced the Mastercool-Kelvinator refrigerator in the 165 litres economy segment. In July 1998, the company also introduced a new premium range under the Maxicool series in two different sizes of 165 litres and 210 litres. Currently, it is introducing various models in the conventional and frost-free segment. Further, it has improved its market share to 20 per cent from 15 per cent over the previous year.
In its aggressive marketing spree, it is targeting a 35 per cent market share by December 1999. This is being done by targeting the replacement market as well as first time second generation buyers who opt for premium products. It has already put in more than Rs 8 crore for television and media advertising. Anticipating the future demand, it plans to expand its capacity from 250,000 units per annum to 360,000 units and will enhance it further to 450,000 units.
To control costs, the company is indigenising to reduce import content. The R&D spending is being increased for upgradation. Apart from upgradation of 165 and 210 litre models, it is developing a 315 litre CFC-free double door refrigerator by 2000. The Kelvinator brand enjoys one of the highest top-of-the mind recall among refrigerator brands.
On the performance front, its sales doubled in the first half of 1998-99 to Rs 154.03. The third quarter December 1998 recorded a 22.54 per cent growth in topline to Rs 92.89 crore. The company recorded an operating profit of Rs 1.85 crore against an operating loss of Rs 2.87 crore in the previous corresponding quarter.
Thus with an expanding product profile, aggressive product launches, economies of scale, the company should come closer to a turnaround at the net levels. Tough this may take a while, hold the scrip at current levels.
Voltas
Voltas has been a pioneer in the field of air conditioning and refrigeration systems. It is also a major player in textile machinery, machine tools and home appliances. But the major burden on the company's bottomline has been its white goods division, which included refrigerators and washing machines. The division contributed little over 33 per cent to its total turnover in 1997-98.
As a part of its restructuring exercise, Voltas has hived off its non-profit making divisions and increased its concentration on its core business to become one of the most profitable units of the Tata group. It hived off its loss-making white goods business to a joint venture with Electrolux, Sweden. Electrolux acquired a 74 per cent stake at Rs 160 crore and the balance is held by Voltas. Analysts point out that the rationale behind the decision was only to get ride of the loss-making division and also, the fact that all refrigerator manufacturers are supposed to switch over to non-CFC technologies by 2003 which will need substantial investments.
Voltas transferred the refrigerator plant at Warora and the washing machine plant at Butiburi (both in Maharashtra), the refrigerator unit at Nandalur, Andhra Pradesh and the compressor manufacturing facilities at Hyderbad to the joint venture Electrolux-Voltas.
However, Voltas still continues to make Voltas and Allwyn brands of refrigerators and washing machines. It has retained its plant at Patancheru in Andhra Pradesh and Dadra. It plans to make use of these capacities for OEM/contract manufacturing as it can offer the benefit of high quality, low cost OEM-manufacturing to white goods multinationals. Its performance for nine months is not worth looking at as it includes the sale of chemicals business and its white goods business has been transferred to the joint venture.
The Voltas brand commands an excellent brand equity and has a nationwide service network. In the room air conditioning business, it is planning a massive comeback by launching 44 models against Carrier's 35 models. The new 1.5-tonne model launched last year was a success, and the company is targeting domestic as well as international markets. The scrip saw a bull run on the back of the restructuring and a Rs 900 crore order from Coal India. The scrip currently trades at Rs 84. Book profits if it crosses Rs 125.
Amtrex Appliances
Amtrex Appliances is owned by Hitachi of Japan. The company has manufacturing facilities at Kadi, North Gujarat. It has also set up a manufacturing plant at Silvassa for manufacturing air conditioners.The installed capacity for air conditioners is 1 lakh units.
The company has turned aggressive since the parent took over controlling stake from the Lalbhai group with newer introduction of models. The company launched a new range of high-end decorative splits like Senpai and Tower in 1998.
It plans to focus on packaged air conditioners in order to get an upper edge in the market place. In the packaged AC segment, its distribution and marketing focus is being aligned to better serve large corporate customers, architects and consultants.
The performance during the first half of September 1998 saw a topline of Rs 76.53 crore against Rs 65.36 crore while net profit fell to Rs 1.18 crore from Rs 2.05 crore. Depreciation doubled to Rs 1.31 crore against Rs 0.67 crore.
With increased competition and newer products, the company is taking a long term view to achieve better quality standards with frequent product introductions resulting in increased expenditure for publicity campaign, thus net profit and margins may still come under pressure.
In order to expand its product portfolio, it has entered the refrigeration business. The company commissioned its manufacturing unit in May 1998. The current quarter will see the full impact of this division. The scrip is trading at Rs 25 and is a good short term buy near Rs 19-21 range.
Whirlpool of India
Whirlpool India is an 82 per cent subsidiary of Whirlpool, USA. The company manufactures refrigerators, deep freezers and compressors. It has an installed capacity 4 lakh frost-free refrigerators and one million ordinary refrigerators. The company plans to concentrate its energies in four product categories; refrigerators, washing machines, air conditioners and microwave ovens. By the year 2000, the company plans to emerge as a leader in the local home appliance industry.
The company has placed a major thrust on brand building in the Indian market through its creative ad campaigns. It successfully launched non-CFC refrigerators in April last year. The non-CFC refrigerator plant was set up at a cost of Rs 320 crore. It plans to achieve better profitability through a proper sales mix and concentrating closely on cost efficiency.
The company's products compare with the best in the industry and is one of the best brands. Its nine month financials for December 1998 had sales of Rs 641.97 crore against Rs 627.87 crore for 12 months March 1998. It made an operating profit of Rs 12.8 crore while its net loss stood at Rs 69.9 crore against Rs 156 crore in 1997-98. The company has come out with a 1:1 rights issue at a premium of Rs 2 per share wherein its equity would rise to Rs 126 crore. At current levels, it is too much of a long term investment.
Honda SIEL
Honda SIEL Power Products (earlier known as Shriram Honda Equipments) is the number one player in gensets. Honda group, Japan took over the stake of the Shriram group at Rs 265 a year back and now holds 66 per cent.
Honda SIEL has a major presence in the northern region. In terms of sales, shopkeepers account for 40 percent of company's sales compared to 25 percent in the household sector, 15 per cent by self-employed professionals and 20 per cent by government and institutional buyers such as hospitals and paramilitary forces. In a recent move the company has begun aggressive marketing to broadbase its geographical spread in the south which has paid back to a certain extent.
Sales during the first quarter April-June 1998 stood at Rs 40 crore against Rs 106 crore for the first nine months of 1998-99. To some extent, its foray into southern market has paid back despite a flat growth recorded by the industry. The scrip is currently hovering at Rs 146 and looks heading southwards. Buy near Rs125 levels.
Birla Yamaha
Birla Yamaha is the number two genset manufacturer in India. Yamaha has been a very pro-active player in the Indian arm with active interest. BYL makes small diesel generating sets for household and shops. It was a loss making company till 1995 but posted a smart recovery after a rehabilitation package was implemented wherein Yamaha got actively involved in management. It began using this venture as a sourcing base for its general purpose engines and generators.
The company has constantly expanded its product range. It launched a four stroke low horse power genset against the earlier two stroke one. BYL has a major presence in the south and is an aggressive player in terms of marketing. According to an analyst, “BYL offers a high dealer margin and hence enjoys lower profitability in the industry.” BYL has a net profit margin of 9.28 per cent as compared to 13 per cent of Honda SIEL.
BYL's first nine months topline growth was negative at Rs 48.10 crore against Rs 53.50 crore. Net profit too has taken a beating at Rs 5.55 crore for December 1998 against Rs 6.24 crore for previous period. At current levels of Rs 25, the scrip is still an avoid.
Enkay Texofood
Enkay Texofood is the only company that offers a reasonable play on on soft drinks. Dabur's Real, Godrej's soft drink brands and Britannia's Zip Sip are small compared to the total turnover of the companies.
Enkay is a Rs 200 crore company with two divisions - textiles and fruit processing division. The textile division contributes Rs 153 crore while the balance comes from fruit processing. Its flagship orange juice brand Onjus is a solid performer. Its other product is the mango drink Life.
In March 1999, shareholders of Enkay Texofood approved the restructuring proposal put forth by the company. Enkay Texofood, is transferring its textile business to Avon Synthetics (Avon), as part of a strategic move to concentrate on its core business of fruit processing. This step will enable Enkay to carry on its fruit processing business in a more focused manner, thereby, strengthening its position in the fast moving consumer goods (FMCG) industry.
Onjus has captured a market share of 34 per cent in the tetrapak segment. The company has taken fast initiatives in terms of setting up a nationwide network. The brand is currently available in 300 cities and towns. Besides it is also marketed in Nepal and Bhutan. The secret for the brand's success is its unique selling proposition that the product offers natural taste and flavour whereas the other processed orange juices and concentrates have artificial additives.
During 1998, Enkay increased its capacity from 28,350 tonne to 36,354 tonne to cater to the increasing demand and plans to increase it further. In future, it plans to launch a range of fruit juices in order to maintain growth in sales and profitability. After the transfer of the textiles division to Avon Synthetics, the company plans to privately place shares to raise money for future fruit processing projects. It is planning a major investment of Rs 250 crore over the next three years in the food processing business. At the current level of Rs 23, the stock can be bought.
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