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Mount Everest Mineral Water: Growing pains - Views on News from Equitymaster
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Mount Everest Mineral Water: Growing pains
Jan 21, 2010

Performance summary
  • Sales for Mount Everest Mineral Water (MEMW) fell sharply during 3QFY10. The sales were lower by 15% YoY during the quarter.
  • Operating income (EBITDA) continues to be in the red for the company. However, the loss this quarter was lower than that of the corresponding quarter last year.
  • For the quarter, net profits were in the red. However, the loss more than halved during the quarter compared to 3QFY09.
  • For 9mFY10, the company recorded a net loss. However, this loss was half the loss recorded in 9mFY09.


(Rs. m) 3QFY09 3QFY10 Change 9mFY09 9mFY10 Change
Net sales 60 51 -14.6% 171 141 -17.2%
Expenditure 145 87 -40.1% 414 273 -34.0%
Operating profit (EBDITA) -85 -36   -243 -131  
EBDITA margin (%) -142.1% -69.8%   -142.1% -93.0%  
Other income 15 9 -40.6% 39 34 -14.1%
Interest (net) 0 0   0 0  
Depreciation 3 3 -0.6% 10 9 -5.1%
Profit before tax -73 -30   -213 -107  
Extraordinary inc/(exp) 0 0   0 0  
Tax 1 0   1 0  
Profit after tax/(loss) -74 -30   -214 -107  
Net profit margin (%) -123.2% -58.5%   -125.5% -75.8%  
No. of shares (m) 340.0 340.0   340.0 340.0  
Diluted earnings per share (Rs)*         -0.5  
Price to earnings ratio (x)         NA  
* trailing 12 month earning

What has driven performance in 3QFY10?
  • Sales for the company have fallen due to the tough economic conditions. The Himalayan mineral water brand is placed as a premium brand and is mostly sold at semi premium and premium restaurants and airlines. However, due to cost rationalisation at airlines the brand has suffered.

    Cost break-up…
    (Rs m) 3QFY09 3QFY10 Change 9mFY09 9mFY10 Change
    Raw materials 23 13 -42.3% 56 35 -37.8%
    % sales 37.9% 25.5%   33.0% 24.8%  
    Staff cost 22 21 -3.4% 59 55 -6.8%
    % sales 36.5% 41.3%   34.3% 38.6%  
    Other expenditure 101 53 -47.6% 299 183 -38.6%
    % sales 167.7% 102.9%   174.8% 129.6%  

  • Loss at operating level was lower this quarter due to fall in raw material and packaging costs as well as employee costs, selling and marketing costs and lower other expenditure.

  • Net loss during the quarter was lower during this quarter. This is a reflection of a lower loss recorded at operating level.

What we expect?
MEMW is suffering from economic slowdown and competition from brands like QUA and Mountain Water. While the lower selling and marketing expenses would seem to indicate that the company is losing interest in promoting the brand, we believe this is not the case. Tata Tea has increased its holding in the company to 50% and plans to merge the company with itself. This in our opinion would indicate that the company plans to relaunch the Himalayan brand. While we feel the acquisition of Mount Everest Mineral Water was expensive, the mineral water segment is a fast growing segment. We would like to wait and watch how the Tata Tea turns this brand around.

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