Good Picture

Salora's performance has improved significantly this quarter. The company seems well poised for growth

A conservatively managed, near zero debt manufacturing company in the consumer electronics industry with a turnover growth of 61 per cent and a profit growth of 90 per cent for the first quarter this year. Further, the company has enough internal resources to fund its own expansion. Sounds like a pipe dream? Salora International, the New Delhi based Jiwarajika group company seems to fit the bill perfectly.

Salora manufactures colour and black and white TVs. Till April 1996, the company manufactured TVs for National Panasonic. Now it manufactures and sells the TVs under its own name. In addition it also manufactures TV components like the fly back transformer (FBT), deflection yoke (DY) and speakers. The company which went public in 1993, is promoted by the Jiwarajika family which has been in the electronics business for over 20 years now.

 

Salora has a very minuscule market share of about 2 per cent of the colour TV market and is a price player. However the company's managing director RP Khaitan claims that their being a price player is their greatest advantage. He says, "Our base is so low that even if we manage to get a one per cent increase in marketshare of a market which is growing at 25 per cent, we would have a significant increase in turnover. We need to worry about two or three years down the line."

The TVs are manufactured using the superior Panasonic technology. The company claims that it had sold about 2,000 colour TVs in the first quarter last year as against 17,000 this year. It expects to end the year with sales of 90,000 units.

"We need to be a large volume player if we need to survive in this business and we have been building capacities to do just that" says Khaitan. The company invested Rs 13 crores to expand its components capacity and will invest Rs 10 crore this year. The capacity has increased by 100 per cent but the company expects about 80 per cent capacity utilisation this year.

The company has now begun to market colour monitors and also plans to get into the manufacture of colour monitors soon. In addition, the marketing business includes the marketing of several Panasonic brand office automation products. The company which is flush with funds, is also looking to buy out a software company.

The company is also concentrating on increasing productivity. It claims to be increasing turnover without increasing employee count significantly. It is in the process of employing a countrywide ERP system. It has also hired Eicher Consultancy to improve productivity.

Salora staged a turnaround in 1996-97.

In 1995-96 the company had a turnover of Rs 212.40 crore with a loss Rs 2.70 crore. But in that year it also hived off its Panasonic manufacturing division for

Rs 3.3 crores and the company's share- holders got two shares in Matsushita Electronics for every share held in Salora.

In 1996-97 the company's turnover dropped to Rs 93 crore but at the same time the company also showed profits of Rs 3.01 crore. In 1997-98 the turnover increased to Rs 135 crore with net profits of Rs 5.43 crore.The company expects to end the current year with a doubling of net profits. If it does indeed manage to double its profits, its return on net worth would increase from about 9.5 per cent to about 14 per cent. The company has no long term borrowings and its debtors and inventories are reasonable and expected to head downwards. This is because of a more proactive funds management.

The stock which was trading at around Rs 13 in June 1998 has shot up and is currently trading at around Rs 23. If the half yearly results of the company are as good as expected the stock is likely to rise again. Even if the stock rises to about Rs 30, it would yield a 30 per cent annual returnin a bear market.