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B. Krishnakumar

AFTER being pushed to lower levels, the share price of dry cell battery producer, Indo National, recovered significantly over the past few months.

The company continues to be a major player in the battery industry and the association with the Japanese major offers technological support to Indo National.

With the price of zinc (the key input) sliding to lower levels, the company's profitability could improve in the near term.

Taking into account the strong fundamentals and prominent position in the industry, Indo National would rank as a strong portfolio candidate. However, taking into account the recovery in the share price from Rs 160 in September to Rs 297, fresh buying may be considered on price weakness. Shareholders could remain invested.

Indo National is the second largest producer of dry cell batteries in the country. It has a technical-cum-financial collaboration with Matsushita Electric, Japan. The company's Nippo brand is quite popular, especially in the southern region.

After recording a steady improvement in financial performance, the company had to contend with a sharp slowdown during 2000-01. The sluggishness in battery demand owing to economic slowdown and depressed conditions in the agricultural sector, affected the financial health of battery producers, including Indo National.

For the year ended March 2001, Indo National's turnover declined to Rs 249.34 crore from Rs 262.22 crore while the post-tax earnings dropped 42 per cent to Rs 8.96 crore. Besides slowdown in demand, the performance was also affected on account of the flow of cheaper imported batteries and increase in price of zinc.

However, the imposition of definitive dumping duty on dry cell battery imports (predominantly pencil size variety) in 2001, has checked the flow of cheaper imported batteries. This has had a positive impact on the financial performance of Indo National.

The impact of soft trend in price of zinc, coupled with the pick-up in volume, was reflected in the sharp improvement in performance during the quarter ended December 2001. The turnover increased 10 per cent to Rs 66.79 crore while the post-tax earnings saw a sharp rise to Rs 4.66 crore from Rs 1.85 crore.

With the growing popularity of electronic gadgets, the demand for dry cell batteries is anticipated to increase steadily in the future. Any recovery in economic fundamentals could prop-up the company's volume growth.

The company appears well-positioned to exploit the anticipated growth in demand for UM3 batteries.

From an investment perspective, the healthy dividend payout is another positive. On the other hand, the relatively small equity base of Rs 3.75 crore is a deterrent.

Individual long-term investors could take equity exposure in the company on price declines associated with overall weakness in market sentiment.

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