X

Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.


Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
FMCG 2002: A year that was… - Views on News from Equitymaster
 
 
  • PRINT
  • E-MAIL
  • FEEDBACK
  • A  A  A
  • Feb 15, 2003

    FMCG 2002: A year that was…

    At first glance, it looks as if year 2002 was one of the worst years for the FMCG sector in recent years. When we took the consolidated performance of India's 5 leading consumer products companies during 2002, the sample topline showed a decline of nearly 6% YoY. However, looking deeper, we found the reality to be a little encouraging.

    The 5 companies referred to here are Hindustan Lever (HLL), Colgate, Godrej Consumer, P&G and Marico. There were many other companies, which we could have chosen, but we felt this sample was a right mix of the old blue chips and the smaller emerging companies.

    (Rs m) DecQ'01 DecQ'02 Change Jan-Dec'01 Jan-Dec'02 Change
    Net Sales 34,301 33,669 -1.8% 133,232 125,674 -5.7%
    Other Income 891 1,151 29.1% 4,342 4,355 0.3%
    Expenditure 27,493 26,209 -4.7% 112,844 102,249 -9.4%
    Operating Profit (EBDIT) 6,808 7,460 9.6% 20,388 23,425 14.9%
    Operating Profit Margin (%) 19.8% 22.2%   15.3% 18.6%  
    Interest 44 29 -34.9% 175 197 12.3%
    Depreciation 551 541 -1.9% 2,081 1,987 -4.6%
    Profit before Tax 7,105 8,042 13.2% 22,474 25,597 13.9%
    Exceptional items -632 -776 - 1,263 371 -70.6%
    Tax 1,399 1,782 27.4% 5,000 5,879 17.6%
    Profit after Tax/(Loss) 5,074 5,484 8.1% 18,736 20,090 7.2%
    Net profit margin (%) 14.8% 16.3%   14.1% 16.0%  
    No. of Shares (eoy) (m) 2,445.8 2,445.8   2,445.8 2,445.8  
    Diluted Earnings per share* 8.3 9.0   7.7 8.2  
    *(annualised)            
    Current P/e ratio (x)   18.0     19.7  
    M. Cap to sales (x)   2.9     3.1  

    As mentioned earlier, during the year 2002, the consolidated turnover of these companies declined by nearly 6% YoY. Competitive pressures and consumer downtrading forced companies to cut brands, rationalise costs and also offer discounts on their products. However, the downturn in the last couple of years has forced companies to look inwards and analyse their core competencies and strategies. Seeing the cut throat competition, most companies have more or less decided to do away with non-profitable products or brands. Product rationalisation has become one effective cost control tool.

    So we saw that while HLL continued to chop off non-core operations and brands, Colgate finally decided to focus majorly on its oral care business and give its personal products plans a quite burial for the time being. The oral care major slashed its ad budgets significantly to improve profitability. The companies have realised that in this era though topline growth is important, but improvement in quality of earnings is also very crucial to ensure long term viability of the business.

    This focus on efficiencies continued to show results in year 2002, as operating margins improved by 330 basis points to 18.6%. Higher interest and tax outgo, coupled with lower extraordinary income, saw profits growing at a slower 7% in 2002 for these 5 companies. Excluding this extraordinary income effect, the sample logged in an encouraging 13% bottomline growth in 2002.

    FMCG without HLL…
    (Rs m) Jan-Dec'01 Jan-Dec'02 Change
    Net Sales 26,556 26,125 -1.6%
    Other Income 524 510 -2.6%
    Expenditure 23,308 22,259 -4.5%
    Operating Profit (EBDIT) 3,249 3,866 19.0%
    Operating Profit Margin (%) 12.2% 14.8%  
    Interest 98 105 7.4%
    Depreciation 635 646 1.7%
    Profit before Tax 3,040 3,626 19.3%
    Exceptional items 259 -13 -
    Tax 976 1,080 10.7%
    Profit after Tax/(Loss) 2,323 2,533 9.0%
    Net profit margin (%) 8.7% 9.7%  
    No. of Shares (eoy) (m) 244.6 244.6  
    Diluted Earnings per share 9.5 10.4  
    Current P/e ratio (x)   14.2  
    M. Cap to sales (x)   1.4  

    As usual, HLL was the dominant contributor to the sample's numbers. The FMCG bellwether contributed a hefty 79% to topline, 83% to the operating profit and over 86% to the sample's profit before tax. The huge extraordinary income is also a gift courtesy HLL. All the companies in the sample improved their operating margins over 2001.

    If we exclude HLL's numbers, the other 4 registered a marginal 1.6% dip in topline during 2002, and finished with a 9% growth at the net profit level. However, the performance was much stronger at the profit before tax level registering an over 19% growth. This in effect suggests that the dip in HLL's topline (down 6.7%) during 2002 had an impact on the overall sample's performance. More importantly, though HLL continued its focus on improving profitability, the other 4 did an even better job in 2002. For example, while, HLL's margins improved by 350 basis points to 19.6%, Colgate managed to improve its operating margins by 400 basis points to 12.6% in 2002.

    CMP (Rs) 52 week H/L P/E **
    Colgate 128 169 / 124 23.7
    Godrej Consumer 99 124 / 52 10.3
    Marico 169 190 / 123 9.1
    P&G Hygiene 368 524 / 355 7.7
    Hindustan Lever 163 266 / 152 20.4

    * P/E based on FY03 estimated earnings

    At the current valuations, the sample sector is trading at a P/E multiple of 19.7x and a market cap to sales of 3.1x 2002 earnings. Excluding HLL, the sample trades at 14.2x earnings, market cap. to sales to 1.4x 2002 earnings. Restructuring efforts at HLL, P&G and Colgate as well as new product entries for Godrej Consumer and Marico are likely to improve the sector's profitability in the long term. However, with most economists forecasting below 5% GDP growth, and a 4% dip in agriculture output in FY03, the short-term macro outlook for FMCG companies continues to remain difficult.

     

     

    Equitymaster requests your view! Post a comment on "FMCG 2002: A year that was…". Click here!

      
     

    More Views on News

    Marico: Earnings Hit by Lower Volumes and Firming Input Prices (Quarterly Results Update - Detailed)

    Aug 9, 2017

    While GST implementation brought down volumes and profitability in the short run, Marico remains optimistic in the long run.

    P&G: Strong Core Growth (Quarterly Results Update - Detailed)

    Dec 9, 2016

    Procter & Gamble Hygiene and Health Care has announced the first quarter results of the financial year ended June 2017 (1QFY17). The company's sales rose by 12.5%YoY while net profit rose by 50.1% YoY during the quarter.

    Nestle India: Sales Traction From New Products (Quarterly Results Update - Detailed)

    Nov 30, 2016

    Nestle India declared results for the quarter ended September 2016. Here is our analysis of the result.

    GSK Consumer: Price Hike Hurts Volumes (Quarterly Results Update - Detailed)

    Nov 30, 2016

    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.

    Marico: Margin Expansion Drives Profit Growth (Quarterly Results Update - Detailed)

    Nov 28, 2016

    Marico has reported a flat topline while the bottomline has grown by 18% YoY during the quarter.

    More Views on News

    Most Popular

    Demonetisation Barely Made Any Difference to Tax Collections(Vivek Kaul's Diary)

    Aug 7, 2017

    The data tells us quite a different story from the one the government is trying to project.

    Proxy Plays: A Smart Way to Bet on 'Off Limits' Companies(The 5 Minute Wrapup)

    Aug 4, 2017

    The small-cap space is full of small players that are clear proxies to great growth stories and Indian megatrends.

    Should You Invest In Bharat-22 ETF? Know Here...(Outside View)

    Aug 8, 2017

    Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    7 Financial Gifts For Your Sister This Raksha Bandhan(Outside View)

    Aug 7, 2017

    Raksha Bandhan signifies the brother-sister bond. Here are 7 thoughtful financial gifts for sisters...

    More
    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407
     

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms

    S&P BSE FMCG


    Aug 17, 2017 01:27 PM

    COMPARE COMPANY

    MARKET STATS