The shake-out within the computer hardware industry seems to be manifesting itself in the stock price of TVS Electronics (TVSE) for some inexplicable reason. An obvious link is being made with the computer hardware industry which has been hit by a fall in profitability.The results of Digital Equipment indicate this fact. Computer companies like Digital Equipment import the bulk of their components (85 per cent in this case) and, hence, the sensitivity of profits to the value of the currency. Besides, the industry on an average operates on margins of eight per cent which seem to have been strained further.
The same cannot be true for TVS Electronics as it caters to a fast growing segment of the hardware industry. Its basic products are computer peripherals such as dot matrix printers and uninterrupted power supply packs. For the first half of the current year, a rapid growth in revenues was achieved through an emphasis on its uninterrupted power supply packs, a segment where the growth rate should exceedthat of personal computers. Besides that, its main business of computer peripherals turned around in the first half with a 63 per cent volume growth, reversing the trend of no growth seen during the previous financial year; so there was no real reason for linking the bearishness reserved for the industry to the scrip as TVSE has been able to increase its market share in printers as well during the last six to eight months.
The other reason that seems to have led to this revaluation is that the TVS group of companies, to which the company belongs, itself seems to be undergoing a rather drastic revaluation. But with the exception of TVS Electronics, all the other companies in that group are involved in the automobile sector, so a revaluation can be justified as the growth factor for these companies have been reduced in varying degrees. The only problem with the TVS Electronics scrip was that it was being valued in line with the other TVS group companies as it had similar characteristics; professionalmanagement, a good growth record, especially in the last one-and-a-half years, emphasis on cost reduction, consistent free cash generation and a record of funding expansion of capacities and incremental net current assets through internal accruals rather than reliance on outside finance, and very importantly, keeping growth in capital employed low.
Hindustan Zinc hits new lows
Hindustan Zinc Ltd's recent performance is nothing but a legacy of the peak prices for zinc that prevailed during the early and middle part of 1997. It is extremely unlikely that the same rate of growth can be extrapolated into the last quarter of the current financial year, even though London Metal Exchange (LME) analysts have opined that there could be some improvement in zinc prices by the middle of 1998. International prices of zinc are already down by 25 per cent from its 1997 peak and various reports indicate that the prices may be headed southwards.
The company is going ahead with further capacity expansions whichwill come on stream only after a couple of years, and over this period it is impossible to assume the direction the price of this non-ferrous metal will take and, hence, a valuation for this stock becomes a dicey proposition at the moment.
Therefore, it is not one bit surprising to see the stock hit new 52-week lows in the midst of record earnings figures being released by the company, as the best definitely seems to be over. The stock is slightly above the level from where it began its run just prior to the improvement in global zinc prices at around Rs 7 to Rs 8 per share.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
