Panasonic Carbon India Limited (PCIL) is not a growth story but it is a consistent generator of free cash flow. I prefer this type of companies. In last five years sales has moved from Rs 25 crore to Rs 37 crore. Net profit has moved from Rs 5 crore to Rs 6 crore on an equity base of Rs 4.8 crore.
The important aspect of this company is that it does not require any capital. It yields 5% at the current price of Rs 150.
Now letâs have a look at its balance sheet. It is **âSize Zeroâ **and does not have any excess flab. It works on negative working capital which is really commendable, given the nature of business. As on 31.3.09, it was having 46.5 crore cash, i.e. approx 97 Rs cash/share. Fixed assets are almost depreciated with almost no addition in capex in the last three years. PCIL does not have any long term loan and working capital loans. The present production capacity will take care of any incremental growth (upto 20% from the present level) in offtake in output.
As a result of the above, the company will continue to generate free cash flow and âcash in the balance sheetâ will increase.
There are a couple of negatives about PCIL:
- Japanese Management -> Though there are a couple of advantages with Japanese management as they are generally extremely conservative, they are not very liberal in sharing the wealth.
- Product -> The product is a commodity one and there is a growing talk of replacement of present dry battery cell with Lithium cell. Although itâs not very clear but it may have an impact on the PCILâs business
In 2010-11, PCIL earned Rs10 per share and expected cash per share is approx 113-115 Rs per share. As a result, the core business is trading at a market capitalization of Rs 12 crore which is actually dirt cheap given the core businessâs ability to generate free cash flow.
I think we need some activist shareholders to shake up the current management and the company should either distribute the cash in form of one time special dividend or can opt for an aggressive share buy back. The business does not require cash and the management should distribute the excess cash lying in the balance sheet to the shareholders.
PCIL is an appealing value buy at the current price and may return 100% (including dividend ) over the next 1-2 years.
Happy investing!
Vikas Kukreja