Reckitt's stunner performance in FY01 - Views on News from Equitymaster

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Reckitt's stunner performance in FY01

Mar 26, 2001

Household care major, Reckitt Benckiser (earlier Reckitt & Colman India Ltd.), has recorded a 52% jump in profits for the year ended December 2000. The company's topline too witnessed an impressive double digit growth of 16%.

(Rs m) FY00 FY01 Change
Net Sales 5,040 5,849 16.1%
Other Income 61 85 38.9%
Interest 31 5 -84.5%
Profit after Tax/(Loss) 140 213 51.5%
Net profit margin (%) 2.8% 3.6%  
No. of Shares (eoy) 32.9 32.9  
Earnings per share 4.3 6.5  
Current P/e ratio   33  

Reckitt is the market leader in the household care segment. Its portfolio includes ultramarine blue, antiseptics, polishes, cosmetics, insect repellants and pharmaceuticals. The company has strong brands in each product segment it operates in. These include Robin (liquid bleach), Cherry Blossom (shoe polish), Harpic (toilet cleaner), Mortein (insect repellent), Lizol (disinfectant), Colin (glass cleaner) and Woolite (fine-fabric washing liquid).

The company's bottomline growth was fueled by a reduction of more than 80% in interest cost. Also a rise of 39% in other income led to higher profit growth.

This is indeed a remarkable performance by Reckitt, in light of the slowdown in topline growth of many FMCG companies. What is even more encouraging, is the company's efforts towards reducing its costs (through VRS and repaying its debts). All these efforts, especially the VRS is likely to add to the company's bottomline in the future.

During the current year, Reckitt is planning to launch mass market products from its parent's stable. The products are likely to be in the home care category, a business which Reckitt acquired internationally after its merger with Benckiser. The company expects the new products to contribute 20-22% of its total business in the current year. It also intends to penetrate rural markets aggressively by increasing distribution network. Apart from cost reduction exercise, these strategies of the company are further expected to help in maintaining its performance in the future.

At the current price of Rs 215, the stock trades at a P/E multiple of 33 times its FY01 earnings with a market cap to sales ratio of 1.2 times.

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