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Nirma: Bottomline blues

May 18, 2001

Nirma is set to declare its results today. While the FMCG sector as a whole struggled to show even single digit topline growth in FY01, Nirma's nine month period ended December 2000 clocked a 47% growth in topline. Its operating margins saw a hefty 1060 basis points growth.

(Rs m) 9m FY00 9m FY01 Change
Sales Turnover 10,600 15,592 47.1%
Other Income 254 85 -66.5%
Total expenditure 8,279 10,527 27.2%
Operating Profit (EBDIT) 2,321 5,065 118.2%
Operating Profit Margin (%) 21.9% 32.5%  
Interest 155 731 371.6%
Depreciation 242 997 312.0%
Profit before Tax 2,181 2,197 0.7%
Tax 251 183 -27.1%
Profit after Tax/(Loss) 1,930 2,014 4.4%
Net profit margin (%) 18.2% 12.9%  
No. of Shares (eoy) (m) 59.8 59.8  
No. of Shares (eoy) (m) 33.9 79.4  
Diluted number of shares (m) 79.4 79.4  
Diluted earnings per share* 32.4 33.8  
*(annualised)      
Current P/e ratio   12.4  

Nirma manufactures and sells detergents (cakes and powders), soaps, soap intermediates (alfa olefin sulphonate- AOS). A pioneer in introducing low-cost detergents through low-cost inputs and low overheads (production in the unorganised sector), it has by passed MNCs like HLL, P&G to become the market leader (in terms of volumes) in this price-sensitive industry. In value terms, Nirma holds 16% market share in the branded detergents segment.

Nirma has consistently improved both its topline and bottomline year after year. In fact, its turnover has spurted at a compounded annual growth rate (CAGR) of 21% in the last three years. Its net profits have grown at a CAGR of 24%, underlining the companyís consistency in perform. Compared to this its biggest rival, Hindustan Leverís (HLL) turnover has grown at CAGR of 14% during the same period. Its profits however, have grown at an impressive rate of 35%.

In the nine month period FY01, Nirma has been hit by rising interest and depreciation costs. The company's net profit has grown by a mere 4% during the period. This has affected the company's valuations. The stock has nearly halved since January this year.

While the company's backward integration into manufacturing linear alkyl benzene and N-Paraffin (both raw materials) has helped it control costs to gain an edge in this price sensitive sector, it has also meant ballooning interest and depreciation costs. The backward integration looks positive for the company in the long term given its 'value for money' business motto.

If Nirma continues its blazing turnover growth, the company is likely to be back on the growth track in bottomline terms sooner rather than later.

At the current market price of Rs 421, the stock trades at a P/E multiple of 12.4x its annualised nine month FY01 earnings.


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