Hardware manufacturers have to devise ways and means to cope up with the changed scenario. The stock market, which is currently on an upward sprint, has been speculating even before the Budget that, at least one hardware maker, TVS Electronics Ltd (TVSE), has perhaps a "soft" solution ready to sail through the hard times ahead. The upsurge in the market price of TVS Electronics Ltd (TVSE) in the last two months has continued unabated post-Budget too.

Ironically, the market confidence has been sustained sans any confirmation of what is really cooking at the company's Chennai headquarters! As far as the punters are concerned, of course, TVSE has already embarked on software development activities. However, no authentication ofthe same is even remotely visible from any of the company generated public information including the annual report for fiscal 1998. The presently software-tagged TVSE scrip, began fiscal 1999 on an uneventful note at Rs 20.40 apiece on BSE. It was largely moving sideways for the best part of the first ten months, ending January 1999 at Rs 26.50 per share. Like the price, the volume of trading too remained at low ebb.

Come February 1999. The scrip began its ride up, after some initial hiccups. It opened the month at Rs 28.50, then briefly dipped to Rs 24. But, it recovered quickly and thereafter spurted with redoubled vigour to end the month impressively at Rs 43.55 -- a neat gain of over 50% in just one month. Post Budget, in March 1999, so far, even as the volume has dwindled, the price line has steeply climbed up to Rs 74.40 a share. On NSE too, a similar pattern of trading has been witnessed.

Purely from the point of historical as well as current working, TVSE does not appear to deserve the presentattention that it is getting on the bourses. Belonging to the house of TVS, one of the reputed and leading automotive component and two wheeler manufacturers in the country, TVSE was promoted by Sundaram Clayton Ltd (SCL). Incorporated in August 1986, TVSE made its Rs 6.55 cr maiden public issue of equity at par in November 1988. The post-issue equity was Rs 14.30 cr, which went up further to Rs 17.03 cr in fiscal 1996, thanks to the preferential allotment of 14% FCDs to the promoters, SCL.

The company's major items of manufacture are computer peripherals, particularly Dot Matrix Printers (DMP) and Uninterrupted Power Supplies (UPS). Though TVSE's parentage was impeccable, it had a roller-coaster ride for most part of the nineties. Much of that can be attributed to the fact that the information technology was an uncharted 'byte' for the group. However, by the mid-nineties, TVSE had managed to cling tenaciously to its pre-eminent position as a market leader, with a market share in the vicinity of 38%, in theDMP segment. Then TVSE suddenly found itself marginalised by the advent of the non-impact range of printers.

In fiscal 1996, TVSE notched up a 15% growth in turnover to Rs 94.37 cr, though the bottomline receded from Rs 3.80 cr in the previous year to Rs 1.55 cr, due largely to the pressure on margins. In the following fiscal too, the turnover grew at a higher rate of 23% to Rs 116.31 cr but net profit remained stifled at Rs 1.79 cr.

In fiscal 1998, the company gave a diagnosis of its problem in an industry perspective. Its estimates showed that the IT industry grew 27 per cent in volume, while printers kept pace, lagging a little behind, at 23.2 per cent. The increased numbers did not rake in more moolah for the industry. Growth in value of sales from printers was placed only 3.5%. The margins were squeezed for the industry in general. The purpose of presenting the industry survey became clear when one looked at the results from TVSE. The company managed to post a much improved profitability of Rs 3.02cr albeit on a marginally lower sales of Rs 114.45 cr, essentially due to lower interest charge on the one hand and the efficacy of cost-control measures on the other.

All the same, in the same fiscal, TVSE cautioned the shareholders about the expected slow down in the growth rate of the IT industry to about 10 per cent. As if on cue, TVSE's turnover, in the current fiscal, stayed put at Rs 53.18 cr for the first half as compared with the Rs 51.84 cr recorded in the previous corresponding period. The first half improvement in profitability from Rs 0.33 cr to Rs 0.46 cr was too meager to draw any meaningful inference.

For the third quarter ended December 1998, the company netted a profit of Rs 49 lakh on a turnover of Rs 30.93 cr. Once again, though this profitability was seven times the profit in the corresponding period of the previous fiscal, TVSE's large equity base of Rs 17.03 cr dwarfed its bottomline many times over. In fact, the reported 9-month profitability of the current fiscal translates intoan annualised EPS of barely 40 paise!

On balance, therefore, the current price curve of TVSE is certainly not justified, going purely by the available fundamentals. Even assuming that TVSE might have forayed into the software sector, it does not guarantee the division's instant success. For the market though, the mere mention of software seems to be more than enough for an euphoria nowadays. And in the case of TVSE, it is software. "TVS" -- the group name that continues to inspire investor confidence.

The speculators have indeed a heady formula on hand. Therefore, in preserving the tradition of honesty associated with its group, TVSE should discourage fuelling the market on speculative rumours. It should not leave its investors at the mercy of speculators.

(Arranged by INVESTAR -- The Aarthik News & Research Syndicate)