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B. Krishnakumar

DESPITE the recent improvement in the valuations of quite a few companies, long-term investors could look for equity exposures in fundamentally sound companies with a track record of consistent dividend payouts.

One such company is Indo Matsushita Carbon Company. Its has strong fundamentals and the share price has moved up from the lows recorded in September.

The company's near-term business prospects have also improved on account of the pick-up in production of dry cell batteries. Shareholders may stay invested, while fresh buying may be contemplated on declines.

The company is the largest manufacturer of carbon rods, a critical component in the manufacture of dry cell batteries. Its clientele includes dry cell majors such as Indo National, Matshushita Lakhanpal, and Eveready Industries.

Backed by phased capacity expansion projects and a pick-up in demand for batteries, IMC's financial performance grew steadily over the 1990s. The relaxation in import norms for batteries (in 2000) coupled with a sluggish trend in the agricultural sector affected the domestic production of batteries.

As a result, the performance of battery producers such as Indo National, Eveready and Matsushita Lakhanpal took a knock during the year ended March 2001. This, in turn, had a negative impact on the performance of Indo Matsushita.

Apart from the drop in demand, the performance was also affected on account of the decline in profitability due to the rise in input costs. The depreciation in the rupee value and the firm trend in crude prices pushed up the cost of inputs, such as carbon black and furnace oil.

As a result, the turnover declined about 4 per cent, to Rs 37.16 crore, while the post-tax earnings fell nearly 15 per cent, to Rs 5.74 crore during 2000-01. On the equity base of Rs 4.8 crore, the per share earnings works out to Rs 11.95. The performance has improved this fiscal over the same period last year.

For the quarter ended December 2001, the turnover increased about 10 per cent, to Rs 9.33 crore, while the post-tax earnings increased about 21 per cent to Rs 1.74 crore.

Much of the improvement could be attributed to the pick-up in battery production this fiscal. The imposition (in 2001) of the anti-dumping duty on battery imports has stemmed the flow of cheaper imported batteries.

This has resulted in the increased production of batteries, which in turn has had a positive impact for Indo Matsushita. With steady improvement in volumes, the company is likely to sustain the recent growth trend in earnings.

On the flip side, a pick-up in demand for alkaline batteries would hamper the company's growth prospects as these batteries do not use carbon rods.

However, the use of alkaline batteries is not likely to increase substantially as there is a steep price differential between alkaline and the traditional zinc batteries.

For IMC, strong fundamentals, a dominant industry position and the healthy dividend payout are positive aspects from an investment perspective.

However, as the share price has recovered from about Rs 33 to the current Rs 52, fresh buying may be considered on declines.

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