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Cadbury: Steady performer

Apr 29, 2002

Chocolate major Cadbury India's 1QFY03 performance continues to be steady. The company recorded a 9% growth in net profits on the back of a 6.5% growth in topline. The bottomline growth has been consistent at 9-10% in recent quarters, however, the topline growth seems subdued as compared to December quarter (17% growth).

(Rs m) 1QFY02 1QFY03 Change
Net Sales 1,499 1,597 6.5%
Other Income 19 23 24.1%
Expenditure 1,247 1,325 6.2%
Operating Profit (EBDIT) 252 272 7.9%
Operating Profit Margin (%) 16.8% 17.0%  
Interest 6 4 -30.5%
Depreciation 58 64 12.0%
Profit before Tax 207 227 9.3%
Exceptional items 1 -9 -
Tax 84 83 -1.1%
Profit after Tax/(Loss) 124 135 8.9%
Net profit margin (%) 8.3% 8.4%  
No. of Shares (eoy) (m) 35.7 35.7  
Diluted Earnings per share* 13.9 15.1   
*(annualised)      
Current P/e ratio   31.8  

This is largely because October-December period is considered a peak season owing to festivals like Diwali and Christmas. Demand for chocolates is higher during this period. Also, the company pushes its products to distributors in this quarter. So, on the flip side, distributors de-stock in the January-March quarter. Thus sales growth is lesser in 1QFY03.

(Rs m) 1QFY02 1QFY03 Change
Material costs 572 565 -1.2%
Staff costs 149 160 7.5%
Advertising & Marketing 171 191 12.0%
Other expenditure 356 408 14.8%
Total expenditure 1,247 1,325 6.2%

The company has managed to improve its operating margins slightly as expenses have grown at a slower clip compared to sales. Infact, had the company not incurred extraordinary expenses towards VRS (Rs 6.3 m) and refurbishment of the registered office (Rs 2.2 m), the company would have finished the quarter with a significant 16.5% growth in net profit.

The performance seems satisfactory considering the difficult market conditions the FMCG sector has been facing. At Rs 481 the stock trades at 32x its annualised 1QFY03 earnings. The stock has been range bound ever since the parent company's open offer at Rs 500 per share. The offer was a success and currently the promoters' hold 90.2% stake in Cadbury India. Due to this, liquidity in the stock has dried up. We do not forsee any significant movement in the stock price. There is also a possibility of the management going in for a delisting.


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