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Nirma 3Q: Interest costs hit bottomline - Views on News from Equitymaster
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  • Jan 20, 2001

    Nirma 3Q: Interest costs hit bottomline

    Nirma, the Rs 17 billion detergents, soaps and personal care products major has declared a 15% decline in its net profit to Rs 649 m in the third quarter ended December 31, 2000.

    (Rs m) 3QFY00 3QFY01 Change 9m FY00 9m FY01 Change
    Net Sales Turnover 3,596 5,244 45.8% 10,599 15,592 47.1%
    Other income 96 27 -71.9% 254 84 -66.8%
    Interest 36 299 729.7% 155 730 372.1%
    Profit after Tax/(Loss) 763 649 -15.0% 1,918 2,014 5.0%
    Net profit margin (%) 21.2% 12.4%   18.1% 12.9%  
    No. of Shares (eoy) (m) 33.9 79.4   33.9 79.4  
    Diluted no. of shares (m) 79.4 79.4   79.4 79.4  
    Diluted Earnings per share*       32.2 33.8  
    Current P/e ratio         20.8  

    Its turnover, however, saw an impressive 46% jump during the same period. The company's profitability took a hit because of a huge 730% jump in its interest costs. The jump in interest burden is a result of the company's increased debt levels. The company took on debt to fund its backward integration programmes to manufacture LAB (Linear Alkyl Benzene), a raw material.

    The company's consolidated nine month results were no different. Nirma's turnover grew by 47% during this period. But, because of a huge 372% jump in its interest costs, the company's bottomline grew by a marginal 5%.

    At the current market price of Rs 705, the stock trades at a P/e multiple of 20.8x its nine month FY01 annualised earnings. In light of the fact that interest costs will continue to hit bottomline, the valuation seems fair and is unlikely to change any time soon.



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