Financial profile of major cos

B. Krishnakumar

AFTER a period of improvement in demand, the carbon black industry appears to be headed towards a relatively sedate phase.

The slowdown in demand from the tyre sector and the firm trend in the CBFS price would inhibit any significant growth in performance for industry majors. From an investment perspective, it would be safer to stay away from the sector.

In the industry, the RPG group outfit, Phillips Carbon Black, is the major player. In tune with the trend in the industry, the company's performance has been depressed in recent years. With a capacity of about 1.75 lakh tonnes, the company is a major producer of carbon black in the country.

Phillips Carbon has a captive consumer in Ceat, the RPG group's tyre major. With huge capacity at its disposal, the company appears positioned to effectively tap the growth in demand, as and when it materialises.

On the financial performance front, the company recorded a 19 per cent growth in turnover and 57 per cent rise in post-tax earnings. It reported a turnover of Rs 89.12 crore and net profit of Rs 74 lakh during this period.

Considering the recent trend in performance and the company's near-term prospects, it would be safer to trim exposures in the company. Fresh purchases may be avoided for the time being.

Cabot Corporation would deserve a second look from an investment perspective on account of the technical backing from its American parent, Cabot Corporation. Though Cabot too is expected to report a depressed trend in earnings in the near term, it would attract attention in the event of a pick-up in automotive tyre production.

For the year ended September 2000, the company's turnover increased by about 27 per cent to Rs 117.89 crore, while the post-tax earnings declined by about 7 per cent to Rs 7.96 crore. On the equity base of Rs 8.74 crore, the per share earnings works out to Rs 9.11.

The MNC tag and the technical support of the global major would probably attract investors towards Cabot India. However, taking into account the recent trends in performance and the sustained slowdown in automobile production, there appears to be no compelling reason to take fresh equity exposure in Cabot India. Existing shareholders could remain invested.

Indian Rayon is the other major producer of carbon black in the country. Apart from carbon black, the company has a presence in readymade garments (consequent to the acquisition of top brands from Madura Coats), insulators and viscose filament yarn. Consequent to the completion of the de-bottlenecking project, Indian Rayon's carbon black capacity now stands at 1.1 lakh tonnes. Carbon black currently contributes about 20 per cent of Indian Rayon's net turnover.

The presence in the readymade garments business is the major attraction from an investment perspective. With top notch brands such as Peter England, Louis Philippe, Allen Solly, Van Heusen and Byford under its fold, the company appears positioned to capitalise on the growing demand for readymade garments.

With a contribution of about 20 per cent from carbon black, the future prospects and investment decision would be more influenced by the prospects in other business segments such as readymade garments, textiles and insulators and not by carbon black alone.

Financially, Indian Rayon has managed to report a steady increase in income from operations while its revenue from other extraneous sources has declined. For the six months ended September 2000, the company's net turnover increased by 36 per cent to Rs 682.8 crore, while the post-tax earnings increased by about 35 per cent to Rs 27 crore.

Given the recent restructuring exercise undertaken by the Aditya Birla Group and the company's strong fundamentals, long-term investors could consider Indian Rayon as a potential investment candidate.