According to managing director K Ramachandran, the company has scaled down its working capital-to-turnover ratio to less than 10 per cent. "This has been no mean achievement considering the fact that the working capital-to-sales ratio has been slashed by almost 9 per cent over the last three years," Ramachandran said.

The Rs 1,556-crore company had earlier appointed REL of UK, world leaders in working-capital management, to streamline processes at its lighting division.

According to Ramachandran, the company's philosophy has been to achieve "profitable growth" through leadership. With this aim, the 51 per cent subsidiary of Dutch electronics giant Philips NV has decided to focus on areas where it ranks among the top three players.

"Although we are guided by international restructuring at our parent company as we draw strength from their product-technologysupport and global sourcing, our product-marketing strategy is largely influenced by local factors," the Philips India managing director said.

To explain his point, Ramachandran said that his company is selling mixers and black-and-white TV sets in the country, although these do not feature in the parent company's product portfolio.

Philips India has, meanwhile, initiated outsourcing low-value components from local players, while concentrating on high-value items.

INSIGHT
Exercise in vain

Although efforts by the management to increase inventory turnover is commendable, given the cut-throat competition prevailing in the market, the effort may not yield a high growth in its bottomline. According to Du-Pont's earnings model, the rise in bottomline is directly proportional to realisations and the asset-turnover ratio.

In the last two years, all consumer-electronic majors have seen their margins under strain. Philips India's case is no different. Its operating margins have fallen from 11per cent in 1994 to 3.07 percent in 1997. In the first half of the current fiscal, operating margins improved to 4.89 percent. In addition, the management plans to increase the inventory turnover ratio from 9.8 in 1997 to over 10 in the present fiscal year. This will definitely raise the bottomline over that of its 1997 figures. But for achieving earnings similar to that of 1994, a much higher increase in turnover is warranted or an increase in realisations - a difficult proposition given the market conditions.