Nirma FY01: Capex woes continue - Views on News from Equitymaster

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Nirma FY01: Capex woes continue

May 18, 2001

As expected, Nirma Limited has declared a huge 41% jump in turnover in FY01 YoY. This is the highest by far among the leading FMCG companies this year. However, capex costs continue to haunt Nirma's bottomline, which grew by a marginal 7%.

(Rs m) FY00 FY01 Change
Net Sales 14,552 20,521 41.0%
Other Income 349 123 -64.8%
Expenditure 11,055 15,514 40.3%
Operating Profit (EBDIT) 3,497 5,007 43.2%
Operating Profit Margin (%) 24.0% 24.4%  
Interest 557 1,007 80.8%
Depreciation 628 1,403 123.4%
Profit before Tax 2,661 2,720 2.2%
Tax 320 231 -27.8%
Extraordinary income - 8  
Profit after Tax/(Loss) 2,341 2,497 6.7%
Net profit margin (%) 16.1% 12.2%  
No. of Shares (eoy) (m) 33.9 79.4  
Diluted number of shares (m) 79.4 79.4  
Diluted earnings per share 29.5 31.5  
Current P/e ratio   13.4  

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.

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.

FY01 has been a good year for the company's toilet soap division. Nirma has entered toilet soaps in a big way only recently. But as its turnover growth indicates, this division has been a major gainer this year. In contrast FMCG major, HLL has shown a degrowth (down 6%) in this segment during its 1QFY01.

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 price of Rs 420 Nirma trades at a P/E multiple of 13.4 x its FY01 earnings. The valuations are on a lower side in view of the staid growth in bottomline.


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