Kodak India: Hold/Buy on declines

Recommendation: Hold/Buy on declines

B. Krishnakumar

Given the strong brand image and aggressive marketing, Kodak India requires hardly any introduction to the investor fraternity.

In technical collaboration with global photographic and imaging products major -- Eastman Kodak of US -- the company produces a range of photographic products spanning professional and consumer imaging segments.

Kodak India has been among the major beneficiaries of the rationaliastion in the indirect duty structure. This coupled with the commissioning of capacity expansion projects helped the company effectively tap the growth in demand for photographic products. Backed by the Kodak range of cameras and photographic films, the company enjoys a prominent position in the consumer imaging segment.

Kodak is the market leader in the medical imaging and motion picture films segment. It has also made a foray into the fast growing digital imaging segment as well. The company made a Rs 73.41-crore rights offer in July 1999 to finance the regular capital expenditure plans. Part of the proceeds of the offer was also intended to take care of the working capital requirement of the company.

The rights offer helped the company address the key issues of rising interest cost and vulnerability of the earnings stream to the vagaries in the foreign exchange market. By utilising a portion of the proceeds for funding working capital and routine fund requirements, the company has successfully reduced the interest cost.

The commissioning of a joint venture unit in Nepal helped the company address the issue of exposure of the earnings stream to the volatility in the rupee-dollar movement. The positive impact of the same is visible in the performance for the last two quarters. Despite the sharp depreciation in the value of the rupee in the last six months, the raw material cost, as a percentage of turnover, declined compared to the corresponding previous period. This indicates that the company has managed to mitigate the impact of the decline in the value of rupee during this period.

For the nine months ended September 2000, the company's turnover rose 23 per cent to Rs 493.04 crore and the post-tax earnings more than doubled to Rs 2,993 crore (Rs 1,314 crore).

As for the future prospects, the company appears well-positioned to tap the anticipated growth in the demand for photographic products. The technical and financial backing of the global major could help it withstand the competitive pressure from other global majors such as Fuji and Konica. The commissioning of capacity expansion projects would also place the company in a position to exploit the steady growth in demand for photographic products.

However, the relatively low floating stock could inhibit major institutional investor interest in Kodak India. But the strong performance and growth prospects would not go unnoticed. Long-term investors could use price declines to pick up exposure in Kodak India.