Kodak 8212; A clear focus

The company has drawn up a Rs 73.41-crore expansion-cum-modernisation plan for increasing capacity of film finishing at Goa, modernisation and expansion of chemical factory at Malanpur, and expand the range of cameras at Bangalore. The company has growth potential and it has beenshowing a compound annual growth of 24 per cent for the past three years. Kodak has a manufacturing capacity of 6.1 million per annum cameras capacity utilisation at 72 per cent for fiscal 1998, 3.71 million square metres of colour negative, motion picture positive films and X-ray films capacity utilisation 68.73 per cent and 18 million litres of chemicals capacity utilisation 49.39 per cent.

The company will deploy Rs 18 crore for expanding film finishing capacity and Rs 6 crore each for chemical factory and camera plant. Besides, the company is also deploying Rs 12.75 crore for upgrading its infrastructure facilities including adoption of enterprise resource planning. The balance of Rs 30 crore is earmarked for meeting working capital requirements. The equity route to meet the working capital requirements will help the company reduce a part of its interest burden.

For the year ended December 31, 1998, Kodak India8217;s interest burden has more than doubled from Rs 4.48 crore in 1997 to Rs 10.45crore. During the year, the company recorded a 12 per cent growth in sales mainly due to a rise in volumes. The increase in sales has resulted in a rise in the working capital requirement and thereby, a spurt in the interest cost. Also, thanks to a sharp depreciation in the rupee, operating profit fell. Net profit plunged to Rs 5.18 crore for fiscal 1998 from Rs 10.1 crore for fiscal 1997.The company has a total debt burden of Rs 106.43 crore as on December 31, 1998. The current debt-equity ratio of the company stands at 0.9. The current equity infusion will improve its leverage to 0.55. The paid up capital will rise from Rs 6.99 crore to Rs 11.18 crore.

As Kodak is issueing 41.94 lakh shares , the liquidity at Kodak counter will also improve. Kodak, UK, holds 74.02 per cent and public holding is low at 17.64 per cent. The promoter intends to acquire additional stake in case of a undersubscription. Since Kodak8217;s exposure to imports is high as far as sourcing of raw materials is concerned, the company isplanning to increase its dollar exports. This way it can hedge a part of its exchange rate risk.

One of the leading players of image products in India, Kodak India has a wide range of imaging products. The largest segment of the company8217;s operations, consumer imaging product, consist of films, camera and paper and chemicals. The other segments include professional imaging products with a significant market share, Kodak caters to motion picture and television market, Kodak professional imaging products, health imaging products, digital imaging products and office imaging products. The company has also launched three new cameras KE-20, KE-40 and KE-50 and will introduce higher speed films for consumers and equipment for mini-labs.

Kodak India is a major beneficiary of the Union Budget for 2000. The proposal to reduce the customs duty in photographic goods to 25 per cent from 30 per cent, and cut duty on photographic equipment to 40 per cent from 45 per cent augur well for Kodak. Also, removal of the 5per cent special duty and the fact that the company would also not be liable to pay the surcharge of 10 per cent on import of photographic equipment are likely to improve Kodak8217;s operating margins.

As the company is projecting a net profit of Rs 9 crore for fiscal 1999, this may help it service a part of the increased equity base. However, Kodak will have to increase its sales realisation for better earnings in future.