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Reckitt: Looking good

Apr 26, 2001

Reckitt Benckiser (India) Limited (formerly Reckitt & Colman of India) has recorded an 8% turnover growth in its 1QFY02. This growth rate is slower than the 16% jump in turnover witnessed in FY01. The company's net profit has shown a growth of 16% (excluding the VRS expenses of Rs 9.8 m).

(Rs m) 1QFY01 1QFY02 Change FY01
Net Sales 1,363 1,477 8.3% 5,849
Other Income 14 8 -43.8% 85
Expenditure 1,246 1,353 8.6% 5,484
Operating Profit (EBDIT) 117 123 5.0% 365
Operating Profit Margin (%) 8.6% 8.3%   6.2%
Interest 3 0 -89.3% 5
Depreciation 31 32 2.6% 145
Profit before Tax 98 109 11.3% 300
Tax 31 32 1.9% 88
Extraordinary expenses (VRS) - 10   -
Profit after Tax/(Loss) 67 67 1.0% 213
Net profit margin (%) 4.9% 4.6%   3.6%
No. of Shares (eoy) (m) 32.9 32.9   32.9
Diluted Earnings per share* 8.1 8.2   6.5
*(annualised)        
Current P/e ratio   24.3    

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)

Reckitt's 1QFY02 results when compared with its FY01 performance make it clear that the company has been hit by the slow down in consumption. Though in the company's favour it must be said that it is in a much better position (in terms of tunover growth) when compared to stalwarts like Hindustan Lever, whose turnover growth in 1QFY02 was a miniscule 1%.

Another reason for Reckitt's slow profit growth is the decline in its other income by 44%. It must be remembered that the company had recorded a huge 52% growth in FY01 bottomline partly aided by a 39% jump in its other income.

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 199, the stock trades at a P/e multiple of 24 times its annualised 1QFY02 earnings with a market cap to sales ratio of 1.1 times. Considering Reckitt's future plans, its dominant position in the household care segment and its strong balance sheet, the stock is attractively placed.

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