FMCG sector continues to feel the heat of an economic slowdown. This is reflected in the slowing revenue growth of SmithKline Beecham Consumer Healthcare (SBCH). The company's turnover in the December quarter rose in single digits compared to a 21% rise recorded in 1HFY02. Although, it managed to improve operating margins, higher interest burden pressurized earnings.
Operating Profit (EBDIT)
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The company's revenues, in fact, started growing at a slower pace in the third quarter only (9% YoY growth). With increasing competition ('Bournvita' from Cadbury and 'Milo' from Nestle) and slower demand, revenue growth was further impacted in the fourth quarter. Its turnover of Rs 8.4 bn for entire 2001 is about 4% lower than Rs 8.6 bn estimated by us.
SBCH's operating margins continue to rise on the back of its cost control initiatives. The consumption of raw material, as a proportion to sales, declined to 37% in 4QFY02 from 51% in the comparable previous period. The company also managed to reduce its advertising to sales ratio to 11.7% from 12.3% in 4QFY01. However, rise in inventory cost due to slowing demand, curtailed a further improvement in operating margins. Overall operating efficiencies soared SBCH's operating profits by 16% during the quarter and 27% for the full year.
Expenses as a % of sales
Raw material consumption
The company has provided Rs 34 m in FY02 as provision for deferred tax which is included in the tax figure. Excluding this, profits have grown by 16%. Bottomline growth was also depressed by a rise in effective tax rate (excluding deferred tax) to 33% in FY02 from 26% in the previous year. The impact of taxation on net earnings is clearly reflected from a strong rise of 28% in pre tax profits of FY02.
At the current market price of Rs 392, SBCH is trading at a P/E of 10.3x FY02 earnings. Although, its P/E multiple is lower compared to its FMCG peers, the company's market cap to sales ratio of 2x is more or less comparable to other food majors.
GSK Consumer Healthcare declared results for the quarter ended September 2016. The revenues dropped by 1.3% during the quarter as compared to a year ago; while the profits declined by 16.6% YoY during the quarter.
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