Panasonic Carbon- A value buy

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

I had posted a brief synopsis of the company on theequitydesk

back in Jan 2010 citing almost the same reasons for investment in the stock.

But now I realise that this could be a value trap:

There seems to have been practically no capital appreciation since then.

Dividend has been consistent but for the risk I might be taking in investing in such companies, I would prefer to go for bank FDs where I am getting much more interest in the range of almost 9-10% and much better margin of safety.

Think of the opportunity cost lost wherein one could have picked up a good stock and got atleast a 50% return since jan 2010.


Hi hitesh,

Thanks for the views. Just saw your analysis on the stock…I think you are right about the no-growth aspect for this company. The only trigger can be if management decides to buyback or give one time dividend for the cash pile up they have in their books. Also the downside is limited and is kinda very defensive stock for a portfolio. It can be bought to balance a high growth portfolio and bring down the risk. But again, in current scenario the FD yields are very lucrative and can become a challange for low beta stocks.

Happy Investing!!!

Vikas Kukreja

When I saw this stock idea being proposed here, I kinda recollected this stock was covered by Capital Ideas Online, by Dipak Sen quite long ago.

I immediately went to this link that I had saved back then, and found the analysis on that link and here to be one and the same :slight_smile: -

Very less appreciation from Dec 2009 till now. 18 months to be precise.

I always had this doubt. How long can you keep your capital idle in a stock that you think has value? 12 months? 18 months? 3 years? Or maybe its something to do with opportunity cost?

If opportunity cost is a parameter here, I would not get into this stock. There are better stories out there for a decent appreciation than this. The question here is - what is the trigger? If the management doesn’t change (japs, and they wont sell), why do you think there would be sudden enlightenment in sharing this cash with the shareholders? And activism? I wouldn’t pin my hopes on that given our state of laws.

For any productive asset, how you see the growth in that asset for say next 5 years and the rate at which you discount that growth become extremely important. So with growth nil, and discount rate =10-13% (CDs), where does that leave you?

If the growth prospects are next to nil, it is an unproductive asset! You are better off buying Gold or Silver.

When you look to allocate your limited capital to your stock ideas, this factor (Growth vs Discount rate) assumes almost 40-50% weightage. The other 50% goes to fundamentals (25%), Management Quality (15%) and Quality of the Business (10-15%).

my research analysis on Panasonic carbon posted by a friend. In case anyone has been tracking this stock or has any view, please reply.

Disc : Invested, biased.

Yes, seems strange they had to change the wordings. My guess is they need to finance their export business, which could mean they are hedging.

However, would love if some clarification from management is obtained.

@mail2maheshav thanks for your interest in the article. Please note, there was no finance cost or hedging cost in FY2016 annual report. But the Q4FY2017 results say that there was finance cost of rs. 676.72 lacs in FY2016. Which means that either the FY2016 annual report is wrong or Q4FY2017 results are wrong. By the way, have requested for a clarification from the company secretary, reply awaited.

Yes noticed that , quite a blooper . Please do share the management answer .

Anyone tracking this now?


Did you receive any mail from the management, Looks like Carbon road business is growing in India. Please share any information about the company, Looks like best option for long term investment.

Disc: Invested, may biased

Hello, Anyone tracking this company currently.? Can anyone share your opinion on the recent annual report?. Thanks