Date: 11th July 2000
Padmini Technologies Ltd - The Queen is on Fire
Current market price - Rs104
BSE Sensex - 4898

Let's start with a short lesson in history. Padmini was the legendary beauty queen of Chittor whom Allaudin Khilji wanted to make his own. The result was a carnage followed by a rite by fire. For the past several months, many investors in this country too have taken a fancy for the stock (some say this tribe is being led by the present Amitabh Bachan of Dalal Street). Their euphoria reached a crescendo when the price touched the Rs260 levels in March this year. But since then it has been a veritable free-fall. Only now has the stock again raised its head yet again. Will it maintain the uptrend? But first a dekho into what the company is upto all this time…

What is the Business?
Initially, Padmini was brought up to manufacture plastic bottles and caps. But soon it got tired with the polymer business and decided to try out something different in life. Instead of selling empty plastic bottles, it decided to fill them with mineral water. Finding no cheer from selling 'aqua pura' it decided to mount the technology horse and invested in producing compact discs, CD-ROMs and digital video discs (DVDs), in short what is euphemistically called as multimedia. With technology being sourced from two Dutch firms Odme and Toolex Inc., the company has a built capacity to manufacture 15,000 units of DVDs or 30,000 CDs per day. At present, 75% of the turnover is being contributed by the multimedia business.

Who is the Management?
What can be said of a management with such a visionary bent of mind? Not many have the gumption to stride the technology spectrum that is required to go from PET's to DVD's. Padmini also holds the distinction of attracting the highest number of complaints received by the Mumbai Stock Exchange. As on January this year, 356 complaints were pending for redressal. And given the previous track record, only the very naïve will believe that Padmini will oblige this time. The litany of woes continues even further. Investors have been shortchanged as the company has failed to pay them their dividend amounts for two financial years as financial institutions did not approve of it. Padmini has also been caught in the anti-evasion net. A notice has been received by the company, which alleges excise duty evasion and other violations to the tune of Rs75mn.

Whither Cash flows?
With speculation being its second name, rumors cannot be far away. There has been talk of the company is selling off its plastic division. This single news has been interpreted as a positive signal as it would mean a fall in the company's debt burden (Rs1.25bn) and in turn its interest outgo.

Why should I Buy?
Given the volatile nature of the stock, it is clearly a play on the market fancy. It is trading at a P/E of 27.4x at F12/98 earnings (knowing its management you should not be surprised. No information on financials is available since then!), which doesn't make it exactly cheap. But then a low P/E will not make it a phataka stock. However, the slate is not totally blank as far as positives for the stock goes. Given the fact that the company has plans to renounce its polymer business, its future is more or less inextricably linked to how the performance of the multimedia segment. According to some estimates, the current market size of 6mn discs is slated to grow at 60% per annum for the next two years and this could only mean a huge upside for the stock. Yet an another revealing statistic says that CD penetration in India is a measly 1% and given the size of the music industry in India the figure is pitiable. In terms of clientele, companies of impeccable lineage are lining up as suitors to Padmini. Samsung Electronics has already sourcing discs from the company, which it is bundling with its DVD's. Others like Philips and LG Electronics are also interested to do the same.

Where can I go Wrong?
But technology as you know is fickle, much like the common 'junta' in Shakespeare's plays. Before you could start understanding its nuances, it may get obsolete. In an era when convergence is a buzzword, you could easily download music from the internet. And in a world when pirates have populated the netherworld of cyberspace, it could well turn out to be a free for all. But all said and done, management concerns still remains the biggest downside. However, Padmini being a phataka stock, we do not intend to scare you away. It is a fairly liquid stock, which means that one need not hunt around for buyers at the time of exit. So piggyback on the stock and get your money's worth but do not stay long enough for the price to come crashing down.

Abhijeet Dey

Archives