The earning multiple does appear to be steep keeping in mind both the current low yield on capital and return on equity. And the current multiple of 29 timesappears to be a little on the higher side if based on these 1997 earnings; but it appears to be a little reasonable at 23.5 times if appended to the possible earnings for 1998 (even assuming that the growth rate is maintained at the level shown in the first four months and not at the long term average). Operating margins are low owing to the nature of operations of the photographic film industry and which constrains the return on capital (the same is true for other companies like Jindal Photo and Phil Corporation as well). Returns will improve only when Kodak India has consolidated itself in the Indian market. The parent organisation (Kodak India is a subsidiary of Kodak UK, which in turn is a subsidiary of Eastman Kodak, USA) is an acknowledged global market leader and the expectation that reflects in the stock price is that the Indian subsidiary will eventually do the same in the local market. Hence the seemingly expensive valuations that seem a little out of sync with the returns generated at present.Kodak's strategy is to dominate all aspects of the business which involve development of photography itself as a business by introducing cameras aimed at various categories of users and not just marketing film. Exclusive stores are being set up to market this concept as well as capture the market for processing films. Among the professional users of film such as film makers and photographers Kodak is already the preferred brand.

But there is a need to capture the mass market which means large expenses on advertising (last year this expense was three per cent of total revenues) all of which is written off in the year during which it is incurred; this is conservative accounting (by Indian standards) and is better appreciated by the market but it also serves to depress returns.

Wim Plast: beating expectations

A combination of low polymer prices, rapid capacity additions and a tax holiday for its manufacturing capacities have pushed up earnings from Wim Plast for 1997-98. The company, whichmanufactures moulded furniture is a relative new comer to the business but has been growing very aggressively. And since the beginning of the last financial year has shown signs that 1997-98 would be an exceptional year for it. The market was taken by surprise by the announcement of very good results; resulting in the stock rising by 30 per cent in the aftermath.

Revenue for the entire year was up by 60 per cent (but that is partly due to the increase in production capacities which came on stream sometime during the last financial year). Margins have improved from 21.6 per cent to 28.4 per cent reflecting both the popularity of these plastic moulded products (the Cello range belongs to this company) as well as the benefits of sustained lower raw material prices. Over the last two years substantial amounts of cash was being generated and retained in the business (a 50 per cent dividend is being paid for the first time this year, at a payout of 25 per cent) which has enabled Wim Plast to embark on largeexpansions through internal accruals and debt. In the last two years alone the company has been able to retain Rs 13.5 crore (the gross block for 1996-97 amounted to Rs 17.6 crore). During the last one year alone the available capacity has been doubled and in the process moulds for several new products and newer designs have been added. The current year should reflect these developments better.