Phillips Carbon Black

In fact, operating profit margins have improved from 18.2 per cent to 19.2 per cent. Better price realisations have helped. However, if one were to compare sales growth, it has been much slower. As compared with an annual growth of 38 per cent in 1995-96, sales grew by 25 per cent to Rs 126.60 crore in the first half of 1997 (September 1996-March 97).

As far as the second half is concerned, sales are expected to grow at a faster pace as the impact of expansions would be felt in the current year. The company has acquired a carbon black plant of Gujarat Carbon and Industries near Baroda which has an installed capacity of 25,000 tonnes.

Besides, the third phase of the expansion and modernisation programme is expected to be complete by end of this month. On completion, the production capacity at its Durgapur plant will go up from 78,000 mt to 110,000 mt. Both these factors should boost sales.

Better earnings, however, have failed to give Phillips Carbons stock a better discounting. Despite an encouraging performance and bright prospects, the stock is still available for a meagre P/E multiple of 3.8.

Perhaps, the mystery can be unravelled in the company annual report for the year ended September 1996: investments in subsidiary companies have taken their toll. As on September 1996, the company had four subsidiaries. In fact, half of its annual report portion is covered by the financial performance of its subsidiaries. During 1995-96, three subsidiaries made losses.

If one were to add profits and losses of these subsidiaries, the sum stands at a net loss of Rs 15.38 crore as on September 1996. For this period, while Carniwal Investments made a profit of Rs 1.28 lakh, South Asia Electricity Holdings and PCBL Industrial Finance made losses of Rs 2.69 crore and Rs 12.71 crore respectively. This means that once consolidation of accounts is allowed, the consolidated profits of Phillips Carbon will be much lower.