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Other income fuels Cadbury's profits

Feb 27, 2001

Cadbury has beaten market expectations and declared a remarkable 42% growth in profits for the year ended December '00. The company's profit growth in fourth quarter were even more encouraging at 61%.

Year ended December (Rs m) FY00 FY01 Change 4QFY00 4QFY01 Change
Sales 5,111 5,712 11.8% 1,338 1,380 3.2%
Other Income 79 121 52.0% 14 77 451.8%
Expenditure 4,336 4,763 9.8% 1,103 1,124 1.9%
Operating Profit (EBDIT) 775 949 22.5% 235 256 8.8%
Operating Profit Margin (%) 15.2% 16.6% 17.6% 18.5%
Interest 38 31 -17.5% 8 10 18.5%
Depreciation 200 219 9.5% 49 57 17.1%
Profit before Tax 617 820 32.9% 193 266 38.3%
Other Adjustments 45 3 -93.8% 30 22 -24.9%
Tax 205 297 44.8% 69 93 34.7%
Profit after Tax/(Loss) 367 521 41.9% 94 151 61.0%
Profits before adjustment 412 524 27.0% 124 174 40.3%
Net profit margin (%) 8.1% 9.2% 9.2% 12.6%
No. of Shares (eoy) (m) 23.8 35.7 23.8 35.7
Diluted Earnings per share* 11.5 14.7 13.9 19.5
P/E (at current price) 30 23

However, topline growth of the company in the December quarter slowed down to 3% compared to its outstanding performance in the past three quarters (1QFY01-20%, 2QFY01-13% and 3QFY01-12%). This could be due to stiff competition in the chocolate confectionery market from its competitor Nestle. Also lower promotional expenditure in the fourth quarter contributed in sluggish sales growth. Its advertisement to sales ratio declined to 7% (from 8.2% in 4QFY00) during the fourth quarter.

Nevertheless, even if we exclude other income, Cadbury's profits have shown a fantastic growth of 39% which is comparatively higher than its peers in the industry. Efficient working capital management and supply chain efficiencies added a gain of around 100 basis points to its operating margins in the fourth quarter.

The sale of property by Cadbury during the quarter boosted the other income. If we were to remove other income, adjustments for VRS and tax, profits of the company dropped by 12% in 4QFY01.

At the current market price of Rs 440 Cadbury trades at a P/E multiple of 30 times with a market cap to sales ratio of 3 times. The company's current valuations are comparatively less than HLL and Nestle which get P/E's of 35 and 36 times respectively.

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