Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.

Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
FMCG: March quarter 2003 update… - Views on News from Equitymaster
  • E-MAIL
  • A  A  A
  • May 3, 2003

    FMCG: March quarter 2003 update…

    The year 2002 was a tough one for the FMCG companies. We saw in our recap on the FMCG sector that our sample of 5 leading companies finished 2002 with a 6% dip in topline. However, improvement in operating efficiencies helped the sample achieve a respectable 13% bottomline growth (excluding extraordinary items) during the year.

    Let's do the same exercise for the March quarter. This time too, our sample includes 5 leading FMCG companies. But this time around, since Colgate has not declared its results as yet, we have taken in Gillette India, the shaving product major. During the March quarter (2003), the consolidated turnover of these companies was up a marginal 2%, which is better than the 2% dip that sample had reported in December quarter.

    (Rs m) Mar Qtr'02 Mar Qtr'03 Change
    Net Sales 27,925 28,581 2.4%
    Other Income 999 1,490 49.2%
    Expenditure 23,363 23,973 2.6%
    Operating Profit (EBDIT) 4,562 4,608 1.0%
    Operating Profit Margin (%) 16.3% 16.1%  
    Interest 64 20 -68.8%
    Depreciation 552 427 -22.5%
    Profit before Tax 4,944 5,651 14.3%
    Tax 1,057 1,303 23.3%
    Extraordinary items 747 -12 -
    Profit after Tax/(Loss) 4,635 4,336 -6.4%
    Net profit margin (%) 16.6% 15.2%  
    No. of Shares (eoy) (m) 2,329.0 2,342.1  
    Diluted Earnings per share* 7.9 7.4  
    Current P/E   19.3  

    While operating margins dipped marginally, falling interest rate advantage was evident in the 69% decline in the interest burden of the sample. Depreciation provisioning was also lower, as companies continued to hive off or close the unviable assets or businesses. The focus on efficiencies seems to have also resulted in freeing of cash and consequently, other income for the group was higher by nearly 50%. All these helped the sample post a 12% growth in bottomline (excluding extraordinary items).

    The small upturn in topline largely came as a result of a turnaround in FMCG major, HLL's topline performance. The company reported a sales growth of 1.2%, the first signs of growth in the last 5 quarters. HLL accounts for almost 83% of the sample's topline and over 88% of the net profit. So it was but natural that the March results of the sample reflect HLL's performance in a large way.

    The HLL management at its analyst meet in early 2003 had indicated that they are now largely satisfied with the overall profitability of the company and would now concentrate on getting the topline momentum going. The March quarter gave us an indication of that. However, the rise in sales came backed by a minor dip in operating margins. This dip in operating margins is thus, reflected on the sample as a whole.

    Without HLL…
    (Rs m) Mar Qtr'02 Mar Qtr'03 Change
    Net Sales 4,540 4,906 8.1%
    Other Income 39 78 96.7%
    Expenditure 3,952 4,204 6.4%
    Operating Profit (EBDIT) 588 703 19.5%
    Operating Profit Margin (%) 12.9% 14.3%  
    Interest 29 2 -93.7%
    Depreciation 168 120 -28.5%
    Profit before Tax 431 658 52.7%
    Tax 82 140 70.3%
    Extraordinary items 0 -12 -
    Profit after Tax/(Loss) 349 507 45.2%
    Net profit margin (%) 7.7% 10.3%  
    No. of Shares (eoy) (m) 127.8 140.9  
    Diluted Earnings per share* 9.9 14.4  
    Current P/E   15.1  

    If we exclude HLL to get a view on how the smaller players in the sample performed, we get a different view of the March quarter. The 4 companies, viz. Godrej Consumer, Gillette, Marico and P&G, together reported a healthy 8% topline growth. In contrast to HLL, operating margins for this sample improved to nearly 15%. Interest and depreciation provisioning too saw a significant dip, adding to the overall profitability.

    Other income swung even more sharply for the 4 smaller players (up 97% during the quarter). All this led to the 'small 4' group reporting nearly 50% net profit growth (excluding extraordinary items). The key contributors to this favourable performance were Gillette (which is in the turnaround mode) and P&G Hygiene that reported a 17% topline and a 25% bottomline growth. Marico seemed a laggard in the group with just 1% bottomline growth. Though Godrej Consumers reported a 22% bottomline growth, this was largely led by tax benefits and not by operations. Higher other income too, aided the company's and indeed the sample's bottomline growth.

    At the current valuations, the sample sector (including HLL) is trading at a P/E multiple of 19.3x and a market cap to sales of 2.9x annualised March quarter earnings. Excluding HLL, the sample trades at 15.1x March quarter annualised earnings, market cap. to sales to 1.6x. It is clear from the performance as well as the valuations that HLL is the key to the fortunes of the Indian FMCG sector. Though a change in topline growth trend is encouraging, it has still not enthused investors towards the sector. Uncertainty over the monsoons has also not helped the sector's investment case.

      CMP (Rs) 52 week H/L P/E **
    Godrej Consumer 108 124 / 70 11.6
    Gillette India** 334 409 / 258 33.4
    Hindustan Lever 138 214 / 135 17.3
    Marico 158 183 / 145 8.1
    P&G Hygiene** 412 480 / 310 10.1

    * P/E based on FY03 earnings
    **For Gillette P/E is based on March quarter annualised EPS
    ** For P&G P/E is based on annualised 9mFY03 EPS

    But these are all short term concerns. In the longer term, we remain convinced that the Indian FMCG sector offers good growth opportunities considering that the per capita consumption of most categories is still low as compared to the developed countries. Backed the infrastructure initiatives, as the economy develops and the living standards rise, the sector is likely to be one of the key beneficiaries of economic growth.



    Equitymaster requests your view! Post a comment on "FMCG: March quarter 2003 update…". Click here!


    More Views on News

    Marico: Earnings Hit by Lower Volumes and Firming Input Prices (Quarterly Results Update - Detailed)

    Aug 9, 2017

    While GST implementation brought down volumes and profitability in the short run, Marico remains optimistic in the long run.

    P&G: Strong Core Growth (Quarterly Results Update - Detailed)

    Dec 9, 2016

    Procter & Gamble Hygiene and Health Care has announced the first quarter results of the financial year ended June 2017 (1QFY17). The company's sales rose by 12.5%YoY while net profit rose by 50.1% YoY during the quarter.

    Nestle India: Sales Traction From New Products (Quarterly Results Update - Detailed)

    Nov 30, 2016

    Nestle India declared results for the quarter ended September 2016. Here is our analysis of the result.

    GSK Consumer: Price Hike Hurts Volumes (Quarterly Results Update - Detailed)

    Nov 30, 2016

    GSK Consumer Healthcare declared results for the quarter ended September 2016. The revenues dropped by 1.3% during the quarter as compared to a year ago; while the profits declined by 16.6% YoY during the quarter.

    Marico: Margin Expansion Drives Profit Growth (Quarterly Results Update - Detailed)

    Nov 28, 2016

    Marico has reported a flat topline while the bottomline has grown by 18% YoY during the quarter.

    More Views on News

    Most Popular

    Demonetisation Barely Made Any Difference to Tax Collections(Vivek Kaul's Diary)

    Aug 7, 2017

    The data tells us quite a different story from the one the government is trying to project.

    A 'Backdoor' to Multibaggers: It's Like Investing in Asian Paints Ten Years Ago(The 5 Minute Wrapup)

    Aug 10, 2017

    Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.

    Should You Invest In Bharat-22 ETF? Know Here...(Outside View)

    Aug 8, 2017

    Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    7 Financial Gifts For Your Sister This Raksha Bandhan(Outside View)

    Aug 7, 2017

    Raksha Bandhan signifies the brother-sister bond. Here are 7 thoughtful financial gifts for sisters...

    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms


    Aug 18, 2017 (Close)