It was well understood that with lower freight rates through much of last year truck fleet owners would not opt for purchasing new tyres rather they would fix older ones, which will increase the demand for retreaded tyres. This led to the belief that there would be additional business for Elgi Tyres as it is the country's dominant manufacturer (50 per cent market share) of treading material as well as retreading equipment.

This anticipation was more than adequately reflected in the gains that the stock achieved. Unfortunately the company reported revenue growth at just two per cent (which is worse that the figures reported last year by companies such as MRF and Goodyear Tyres). The growth inprofit for the year is just 17 per cent. The stock has reacted since the announcement of the results for the year from the high of Rs 434 to Rs 325, a drop by 25 per cent.

Phil Corp: Uninspiring results

Unlike the good results shown by Kodak India a few weeks ago the results shown by one of its major competitors, Phil Corporation (the marketer of the Konica brand of photographic films) has left a lot to be desired. The company has hardly been able to increase its revenues as well as its margins. The end result is that the growth in net income has been less than adequate. The growth rate has got progressively worse during the year, to just 6.3 per cent, after beginning the year with a first quarter growth rate of 20 per cent.

The players in the photographic film industry have been grappling with the challenge thrown to them by Kodak India. In the last couple of years Kodak has grown by 45 per cent compounded year on year while Phil Corporation has grown by 28 per cent compounded year onyear.

The problem with Phil Corp has not been just with the need to grow its marketing and distribution networks but also in managing the diverse businesses that it has entered into such as manufacturing and marketing of snack foods etc, which demand deployment of resources which could have been otherwise retained within the photographic films business. The effect of competition has been telling on Phil's ability to market its films and for the last two successive years there has been a pile-up of inventories, leading to negative cash flows.

And the competition is only getting stiffer. For the first quarter of the current financial year the company has grown its revenues by 20 per cent and is easily the dominant marketer of film in the country. Phil Corp imports from Japan and pays for these imports in yen, the stability of currency values here reflect in company's operating margins which have remained stable at 7.4 per cent from 7.3 per cent in the last year (margins have been more or less maintained atthe same level in the second half as well). But the increase in the EPS to Rs 11.5 has had little impact on the stock, despite the fact that the RoE is still good at 24.5 per cent; though it is lower than the 26.5 per cent earned last year.

Shareholders have become increasingly despondent with the company and this approach is being reflected in the stock. Despite a good performance from Kodak India that stock too has been looking increasingly bearish as the currency risk is greater for Kodak (as its imports are paid for in dollars) and selling from the FIIs could be one reason. Even though the basic customs duty has been reduced for photographic films the duty of photographic chemicals has been increased. In addition to that the imports of jumbo film will attract the special additional customs duty of 8 per cent, thus negating the impact of the lower basic duty. If one recollects, a part of the slow down in the growth rate for photographic companies had come about after the imposition of the 5 per centspecial import duty in middle of the last financial year. That duty still stands. These film marketers have so far been absorbing the increases in the duties and the continuing to do so can only hurt their already fragile margins further.