How Government Policies affect companies?
Source : http://www.indiavalueinvest.in
There is already a well known example of Oil Marketing Companies in the Indian Stock Market. But these companies are majority government owned and so the impact of government policies on these companies can be understood. But even companies not owned by Government can have a major impact of policy changes. Let's take an example of cooker makers. There are two main organized cooker makers in India, Hawkins and TTK Prestige. The following shows their profits and share prices during the last thirteen years.
| Hawkins | Prestige | |||
|---|---|---|---|---|
| Year | Profits | Share Price | Profits | Share Price |
| 1997 | 4.7 | 55.5 | 8.39 | 45.5 |
| 1998 | NA | 46 | 5.08 | 25.75 |
| 1999 | 4.01 | 37.3 | 9.33 | 45.5 |
| 2000 | 3.6146 | 28.1 | 3.64 | 30.75 |
| 2001 | 1.868 | 30.1 | 1.55 | 16.8 |
| 2002 | -2.06 | 24.25 | 0.7 | 14.5 |
| 2003 | -6.91 | 18.15 | -11.47 | 6.65 |
| 2004 | 0.798 | 16.45 | 0.21 | 13.35 |
| 2005 | 3.11 | 51.4 | 3.81 | 46.4 |
| 2006 | 4.027 | 71.05 | 7.11 | 150.75 |
| 2007 | 7.494 | 83.1 | 11.77 | 122.7 |
| 2008 | 11.261 | 153.3 | 20.67 | 116.05 |
| 2009 | 19.116 | 162.2 | 22.38 | 90.8 |
The two durations of government policy changes are marked with bold. What was that change? The change was very simple. The Central Excise Duty on cookers was increased from 8% to 16% from 1st April 2000. The results of these companies started deteriorating from that year itself as the profits went down by 50% or more. The companies started making losses in 2002-2003 and the government woke up. The duties were again revised from 16% to 8% from 1st April 2003. The companies started making profits from the first year itself and see the results of the last year.
The share prices too declined along with profits during 2000-2003 by around 40% to 70%. Hawkins skipped dividend only in 2003 while TTK skipped for three years of 2002-2004. The investors who bore the pain of heavy losses and no income of dividend have been rewarded handsomely as the prices are up by more than 35-50 times (not percent) today.
