Jindal Photo - Stock Analysis

Jindal Photo Limited is engaged in manufacturing of photographic and allied products. The Company's product range includes Color Roll Films, Cameras, Photographic Color Paper, Medical X-Ray Films & Equipments, Cine Color Positive Film, Photo Processing Equipments and Photographic Chemicals. The Company markets the products under the brand name FUJIFILM. It also sells photo-finishing labs. Jindal Photo is also marketing the Fuji digital range of products, including Digital ID Systems, Digital Cameras and Digitized Photographic Processing Equipments. The Company’s subsidiaries are Jindal India Thermal Power Limited, Jindal India Power Ventures Limited, Hindustan Powergen Limited and Jindal Imaging Limited.

The performance of the company in FY 2008 looks good with around the same turnover os FY07 and much better profitability. This is because of increased share of the medical equipment business and the downward trend in the US currency. The net profit in FY08 has shown an increase of around 70% compared to the previous year. To look deeper into the position of the company during the recessionary period, we see some dampening in the demand in the second and third quarters of FY 09 but the last quarter has resulted in growing demand and sales.

Jindal Photo is a debt free company, with a market capital of around Rs.137 Crores (a market price price of Rs.133.15). In recessionary times, debt free companies which have had some periods of sub-normal performance often turn into debt capacity bargains. When we look at the Cash Flow of Jindal Photo for FY08, their is a net cash outflow. Does this mean that the company does not have any debt bearing capacity? The cash flow from investing activities show that a sum of around Rs.99 Crores have been used to buy investments. The schedule for investments in the Annual Report show that around 57 Crore of the total investments of the company are in Mutual Funds. As these can be assumed to be a liquid equivalent of cash, we assume a suitable cost of capital and interest coverage ratio to arrive at the debt capacity of Jindal Photo.

My estimates and analysis say that Jindal Photo can easily srvice debt of around Rs.110 Crores. Graham said that the value of equity of a company can never be less than the debt bearing capacity of a company. Though the previous statement is a very restrictive one, but it is true to some extent. Now following the principles of Graham and adding 75% of debt capacity as a value for the equity of the company, and also adding the cash and cash equivalents (I have taken here cash and Investments) of Rs.101 Crores, we reach a final value of Rs.293.5 Crores. The outstanding 1.02 Crore shares bring the value to Rs.287 per share.

The current value of Jindal Photo stock as of today is Rs.133.15, which is way less than the value we just calculated. Thus, I believe there is a great amount of value to be uncovered in this stock.

Risks: In my opinion the biggest risk to the business of Jindal Photo are the fast 

technological developments happening around the world. The demand for the color photo rolls has been reducing fast due to the increased usage of digital cameras. Even in medical equipments, the evolving technologies present a inherent risk. The company has been doing well in this regard till now and we can hope for the same in the future too.

Note: When reading about debt capacity bargaians for the first time, it took me a lot of time to grab the concept. To make it more clear, I suggest going through some readings on the subject available on the internet.