National Viewership

The Indian television market has one of the lowest penetration levels of colour television and audio systems in the world. As compared to the penetration level of 23 per thousand households in China and 32 per thousand households in Korea, India has a level of less than 6 per thousand households in colour televisions. This was a good enough reason for many multinationals to set up shop in India. They had come in with very high targets but market realities made them scale down expectations.

Matsushita Television is one of the multinationals to have entered India. It also had a very high target and planned to achieve a turnover of Rs 800 crore by the end of the financial year 1996-97 and could not achieve even a quarter of it. Subsequently, it has reset its sales targets to achieving a turnover of Rs 250 crore by the end of this financial year.

Matsushita Television is a 55 per cent subsidiary of Matsushita Electric, the owners of the National and the Panasonic brands. The parent Matsushita Electric Industrial (MEI) is among the top 25 among the Fortune 500 companies. This company was formed by Salora International spinning off its Panasonic division and for a purchase consideration of Rs 50.12 crore.

Of this, only Rs 27.62 crore was paid as cash. Salora International was given shares worth Rs 4.86 crore and shares worth Rs 17.64 crore wee issued to the shareholders of Salora International.

The company has state of art manufacturing facility in Noida and has a capacity of 200,000 colour television sets and 400,000 audio systems. In 1996-97, the production was 84,752 and 65,579 sets in the colour television and audio systems respectively. The company was able to notch a sales turnover of Rs 144.70 crore and other income of Rs 0.52 crore. The company posted an operating profit Rs 13.27 crore and a loss of Rs 10.35 crore at the net level.

This is due to the interest and depreciation being apportioned over a sales generated out of 50 per cent capacity utilisation. The depreciation charge will be less next year due to the company pursuing written down value method where the depreciation charge is higher in the earlier years and then it declines. Following the written down method of depreciation makes sense for Matsushita Television where technological obsolescence is a major threat.

There are also some extraordinary non-recurring charges which have reduced the profits in the first year. The company paid an interest of Rs 5.4 crore of the total interest of Rs 10.84 crore to Salora International due to the company obtaining court approval only in September 1996. Managerial fees of Rs 0.68 crore was also paid to Salora International due to the same reason.

With import cost contributing to a large extent to the raw material cost, Matsushita Television has indigenised about 60 per cent of its raw material requirement for colour television and about 20 per cent of its raw material requirement for the audio systems.

This indigenisation is done after taking into consideration that the local parts meet the standards that are required for it to maintain the international quality. This will reduce the import content which is subject to foreign exchange risk which is an important factor considering the current movements in the exchange rate and the exchange rate volatility.

R Srinivasan, analyst with stockbroker PR Subramanyam, says, Quality and technological innovation would certainly be the key drivers for sustainability and survival. In this context we support Matsushita Televisions emphasis on quality development as against pure market shares. While this may lead to short-term underperformance, we strongly believe that the market would eventually be willing to pay a premium for lower risk.

But one worrying factor is the low key marketing of the company, in an industry where the players make an advertising blitzkreig to announce their arrival. Matsushita has entered the market silently and there is little brand awareness. A leading dealer in Mumbai said that there is little demand for the Panasonic brand at present.

Another concern is that there is a separate marketing company through which Matsushitas televisions are sold. National Panasonic India is a subsidiary of MEI through which it markets its entire product line. One reason for the low key marketing could be that the company is thinking that the quality of the product will speak for itself.

But despite the poor marketing effort, the company is chugging along quite well. Matsushita Television has posted an impressive performance in the first half of the financial year 1997-98 with sales of Rs 72.20 crore and an operating profit margin of 10.11 per cent. For the last full year, the operating profit margin was 9.17 per cent.

The scrip is currently changing hands at Rs 7 which is below par and considering the market potential of this industry which is in a growth phase and the good brand name will help the company in turning around. Another point to consider is that the other Matsushita subsidiaries like Indo National (makers of Nippo batteries), Indo Matsushita Appliances are performing well and also have market fancy. Considering the investor interest in multinationals, here is an opportunity to buy a multinational stock below par with little downside.