May 18, 2001|
Nirma FY01: Capex woes continue
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%.
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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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