Though the pace of FII buying has slowed down over the past few weeks, they have remained net buyers when domestic funds have been selling. Last week was no different. The developments at UTI, downgrade of IDBI and news of various Indian FIs having invested heavily in KP-scrips caused a pall of gloom amongst investors. Besides, the extremely low volumes so far have not proven conducive for much institutional and operator activity. The Sensex continued to slide and closed the week at 3251.53, down 89.22 points or -2.67% w-o-w. The major losers last week were Polaris (-37%), DSQ (-24%), GlobalTele (-22%), ZEE (-21%) & Silverline (+11%) while the active gainers were Sterlite (+9%), SunPharma (+9%), HHonda (+6.7%), SBCons (+6.3%) & TataChem (+5.2%).

Technically, though the market is short-term bearish, it is heading towards the oversold zone. On the fall, the Sensex is expected to find support at 3225 & 3120 and on the rise could face resistance at 3290, 3365, 3430 & 3510.

BPL is one of India’s leading producers of Colour TVs with a market share of about 20%. It has technical alliance with Sanyo of Japan for its entire product portfolio. BPL is the number one brand in frost-free refrigerators with a 22% market share and is the leading exporter of alkaline batteries from India. The overall BPL strategy has been built around leveraging scale, size and brand strength for opportunity maximisation.

Developments …

Streamlining activities and introduction of new products: In this regard, the company is contemplating the manufacturing and marketing touch screen kiosks in the country. It plans to focus on niche markets like hospitals, banks and retail sectors as kiosks have multiple uses both in urban and rural areas. The company has streamlined itself to focus on four core business areas -- entertainment electronics, home appliances, soft energy and healthcare.

Cost cutting measures: Apart from the expansion in the global market, BPL has embarked on a cost cutting exercise entailing process improvements, systems investment and cost management. This will translate into a reduction in operating expenses by as much as 10% on an annualised basis. It is reducing its warehouse space by about 20% and planning to have third party assembly lines in some states to enjoy tax benefits.

Focus on brand equity: BPL has decided to focus at the lower end with its 20" and 14" models. It is targeting sale of 1.25m CTVs and increase its market share to 21% this year. The company is strengthening its mother brand and investing Rs.300crs over the next three years to this end. This would enable the company to establish a dominant market share in the long run – India is forecasted to be the third largest market for CTV by 2010 after Europe and China.

Financial Reviews: BPL expects to be debt-free by 2003 with the repayment of its loans exceeding Rs.450crs. While each year the company is reducing its loans by around Rs.70crs, it is bringing down its working capital requirements by nearly Rs.60crs.

Concerns…

The negative growth in demand for consumer electronics experienced in the first half is unlikely to turnaround in the second half of the current year; only the CTV segment is counting on a possible growth. The B&W television sector, radio sales, stereo recorders are all expected to show a dip in sales. The cash generated from operations has been on a steady decline, leading to further pressure.

Influx of foreign brands like Samsung, SONY, LG, Thompson, AKAI, have put considerable pressure on BPL’s ability to grow

The recent SEBI ruling bars the company from accessing the capital market for the next four years.

In the last quarter ended Jun’01, net profit fell by 46%yoy mainly on account of the 21% decline in operating revenues and 121% jump in interest expenses. However, the operating margin has improved considerably despite the turnover being lower indicating tight control over operating expenditure.

A pick-up in off-take of consumer durables is a must for BPL’s future growth. Any turnaround in demand would be driven by low interest rates and good monsoons. The company’s brand image, emphasis on quality-products and vast distribution network would go a long way in driving sales, should demand pick-up. We recommend a HOLD on the scrip for now.