Shaving products major, Gillette India, has reported a 26% dip in topline growth during the March quarter. The sales for the quarter were lower on account of discontinuation of export sales of Duracell batteries coupled with overall general slowdown in some of the key product categories.
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Gillette finished the quarter with a Rs 26 m loss, as compared to Rs 38 m profit declared in the corresponding period last year. The slowdown in the FMCG sector, Duracell's hive off as well as higher advertising expenditure took a toll on the company's operating margins. The company earned a measly 2% as operating margins in 1QFY03.
This setback at the operating level was enough for the company to fall into the red. The company had earlier reported Rs 278 m loss in FY02. It must be remembered that Gillette has decided to sell Duracell India plant to Duracell Belgium for a consideration of US$ 6.5 m. It 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 red. Another major positive for the company is the capital grant of Rs 850 m (US$ 17.5 m) from its parent. The monies realised will be used to retire debts and strive to make Gillette a zero debt company. Also in the coming year, its depreciation will be lower due to the discontinuation of the Duracell plant.
It was widely expected that post the Duracell hive off and the capital grant from the parent, Gillette will be better geared to perform in FY03. However, its first quarter results indicate that problems still persist. There is no doubt that going forward Gillette is likely to get its act together and thus its stock is has held strong at Rs 380 levels. But in the short term, the stock may weaken in view of the disappointing 1QFY03 results.
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