Gillette: 'Mach'o first quarter numbers - Views on News from Equitymaster

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Gillette: 'Mach'o first quarter numbers

Apr 22, 2003

Gillette India Ltd. has started FY04 on an encouraging note. The company has reported Rs 82 m as net profit during the March quarter, as compared to Rs 26 m loss in the correponding quarter last year. The company's sales were up 19% YoY during the quarter.

(Rs m)1QFY031QFY04ChangeFY03
Net Sales72185819.0%3,830
Other Income172865.9%131
Expenditure707678-4.0%3,388
Operating Profit (EBDIT)141801166.2%443
Operating Profit Margin (%)2.0%21.0% 11.6%
Interest 120-99.2%55
Depreciation5540-27.8%205
Profit before Tax-36168-313
Tax-1078-110
Extraordinary expenses0-8--138
Profit after Tax/(Loss)-2682-65
Net profit margin (%)-3.6%9.5% 1.7%
No. of Shares (eoy) (m)32.632.6 32.6
Diluted Earnings per share*-3.210.0 2.0
*(annualised)    
Current P/E 32.3  

For full year FY03, Gillette had 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 March quarter and full year FY03 are not comparable as Gillette had divested the Geep Battery business in the last quarter of 2002. 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. The negligible interest burden during the quarter is a testimony of the debt restructuring benefits.

Cost break-up
(Rs m)1QFY031QFY04Change
Raw material31635010.9%
Staff 82898.8%
Others309239-22.8%
Total expenditure707678-4.0%

From now on Gillette is a focused personal products major in India. After the restructuring over the last few years, Gillette seems set for growing this business in India. The first quarter is an encouraging sign for the rest of FY04. Apart from its global range of products which are premium positioned (Mach, Sensor Excel), Gillette's strategy now is to prop up its 7'O Clock range to cater to the lower end of the customers. This is likely to support its topline growth going forward, albiet at some cost to its margins.

At Rs 324 the stock trades at 32x annualised March quarter earnings, market cap. to sales of 3.1x. The valuations at the current juncture seem at a premium. Though post restructuring, the first quarter numbers of Gillette look good, they are not a definitive sign of things to come. We believe, one quarter is too short a period to form an opinion on the long term prospects of the company. Let's not forget that it is the same company which made mistakes and had to keep restructuring operations for almost 3 years.

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