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Gillette: Geared to benefit - Views on News from Equitymaster
 
 
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  • Feb 21, 2003

    Gillette: Geared to benefit

    Shaving products major, Gillette India, has reported a significant 40% decline in net sales during the December quarter. However, the company has reported a significant improvement in bottomline. Gillette India finished 4QFY03 with a lower loss of Rs 33 m, as compared to a significant Rs 332 m net loss during 4QFY02.

    (Rs m) 4QFY02 4QFY03 Change FY02 FY03 Change
    Net Sales 1,524 921 -39.6% 4,951 3,830 -22.6%
    Other Income 64 73 14.0% 166 131 -21.5%
    Expenditure 1,281 803 -37.3% 4,492 3,388 -24.6%
    Operating Profit (EBDIT) 243 118 -51.3% 459 443 -3.4%
    Operating Profit Margin (%) 15.9% 12.8%   9.3% 11.6%  
    Interest 46 17 -64.1% 138 55 -60.0%
    Depreciation 82 57 -30.2% 300 205 -31.6%
    Profit before Tax 180 118 -34.2% 187 313 67.3%
    Tax -125 13 - -142 110 -
    Extraordinary items -636 -138 - -606 -138 -
    Profit after Tax/(Loss) -332 -33 - -278 65 -
    Net profit margin (%) -21.7% -3.6%   -5.6% 1.7%  
    No. of Shares (eoy) (m) 32.6 32.6   32.6 32.6  
    Diluted Earnings per share* -40.7 -4.1   -8.5 2.0  
    *(annualised)            

    For full year FY03, the company reported a 23% topline dip, with an improvement at the net profit level. Gillette had reported Rs 278 m loss in FY02. The shaving major finished FY03 with Rs 65 m net profit. The results for the quarter and full year FY03 are not comparable as Gillette had discontinued manufacturing operations at its Duracell Manesar plant at the beginning of the year. Also, it divested the Geep Battery business leading to a one time negative impact on revenues. With this, the company is totally out of the battery business and is now a focused personal care major with products in shaving and oral care.

    The company had been in the throes of restructuring for most of FY02 and FY03. It decided to sell its Duracell India plant to Duracell Belgium for a consideration of US$ 6.5 m. It also closed the Duracell plant at Manesar and consequently took a hit of Rs 606 m for its closure. This component was largely the reason for Gillette India ending FY02 in the red. The consideration on the Jeep Battery business divestment is not as yet clear. Another major positive for the company is the capital grant of Rs 850 m (US$ 17.5 m) from its parent. The monies realised have been used to retire debts and restructure its marketing and distribution network.

    Cost break-up
    (Rs m) FY02 FY03 Change
    Raw material 2,223 1,796 -19.2%
    Staff 360 354 -1.7%
    Others 1,909 1,238 -35.2%
    Total expenditure 4,492 3,388 -24.6%

    Due to the exit from Duracell and Jeep Battery, sales have recorded a significant dip, but expenses have also shrunk. Infact in FY03, operating margins have shown an improvement to nearly 12%. Moreover, Depreciation provisioning and interest burden are also lower. These are all signs that Gillette India is on the road to recovery.

    Enthused by the restructuring the stock has gained ground recently. It is currently trading at Rs 311, a market cap to sales of 2.6x. Going forward Gillette's operating performance should be even better. But one has got to wait and watch how the restructured Gillette performs in March quarter, for it will give an indication of the company's valuation bearing going forward. In the long term however, the move to focus on its core personal care business will surely make Gillette a name to contend with in the Indian FMCG spectrum.

     

     

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