Archies: Gifts in vogue - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks

MEMBER'S LOGINX

     
Login Failure
   
     
   
     
 
 
 
(Please do not use this option on a public machine)
 
     
 
 
 
  Sign Up | Forgot Password?  

Archies: Gifts in vogue

Jun 6, 2005

Introduction to results
Greeting cards and gifts major, Archies Ltd., recently announced its 4QFY05 and full year numbers. The company reported a robust growth of 200% YoY in bottomline backed by an 18% YoY rise in revenues for the quarter. Also, for FY05 its topline grew by a decent 14% YoY and bottomline by 25% YoY.

(Rs m) 4QFY04 4QFY05 Change FY04 FY05 Change
Net Sales 151 179 18.3% 676 770 13.8%
Expenditure 146 168 14.5% 582 653 12.3%
Operating Profit (EBDIT) 5 12 129.8% 94 117 23.5%
Operating Profit Margin (%) 3.4% 6.5%   14.0% 15.2%  
Other Income 2 1 -30.3% 9 10 13.4%
Interest 1 1 3.4% 4 4 0.4%
Depreciation 4 4 13.8% 16 17 3.9%
Profit before Tax 2 8 220.1% 83 106 27.4%
Tax 1 3 252.9% 31 41 31.0%
Profit after Tax 2 5 201.1% 52 65 25.3%
Net profit margin (%) 1.0% 2.6%   7.7% 8.4%  
Effective tax rate (%) 36.8% 40.5%   37.4% 38.5%  
No. of Shares (m) 6.5 6.5   6.5 6.5  
Diluted earnings per share* (x) 1.0 2.9   8.0 10.0  
P/E ratio (x)         12.0  
(* annualised)            

What is the company's business?
Archies is the market leader in the greeting cards space. It also has other social expression products like gifts, posters etc. The company has a market share of over 50% currently. It set up a music division recently and has been expanding the range of products sold at its outlets. Its competitors are players like Hallmark, Wilson, Ambassador and ITC. Archies greatest strength is its retail reach and the company has around 430 retail outlets spread across over 100 cities in 6 countries. The company added 15 new stores during FY05 and by FY06 the company plans to add 20 more stores.

What has driven performance in 4QFY05?
Greeting cards:  The company's key contributor to revenues, greeting cards, is under continued pressure. Revenues of this segment were down 2% during the quarter and 5% during FY05. Greeting cards is largely an urban phenomenon. With increasing availability of the Internet, sending greetings via the net has become a viable alternative, as compared to the printed card. There are many websites that offer free greeting cards to be sent. Though Archies too has an online offering, it is largely paid. Also, entry of aggressive players like ITC into the segment (ITC is already the No. 2 in this segment with a 20% share), Archies' key business is under further cloud.

Segment revenue and margin snapshot (Gross)
(Rs m) 4QFY04 4QFY05 Change FY04 FY05 Change
Greeting Cards 67 65 -1.8% 344 328 -4.6%
PBIT margin (%) 15.2% 6.6%   28.4% 26.3%  
% of segment revenue 44.0% 36.5%   51.5% 44.5%  
Stationary Item 18 25 38.0% 91 101 10.6%
PBIT margin (%) 8.7% 26.6%   18.7% 22.8%  
% of segment revenue 12.0% 14.0%   13.7% 13.7%  
Gifts 65 82 25.2% 215 286 33.0%
PBIT margin (%) 15.6% 10.2%   8.5% 11.3%  
% of segment revenue 43.1% 45.6%   32.1% 38.7%  
Perfumes (5) - - (8) - -100.0%
PBIT margin (%) - -   - -  
% of segment revenue - -   - -  
Others 6 7 18.7% 26 23 -13.0%
PBIT margin (%) -1.3% 0.5%   11.7% 4.6%  
% of segment revenue 3.9% 3.9%   4.0% 3.1%  
Total segment revenue 151 179 18.3% 668 738 10.4%
PBIT margin (%) 3.3% 6.7%   14.1% 15.9%  

Gifts The best factor:  The company's business of 'gifts' has meanwhile, clocked an encouraging growth. While revenues from this business were up 25% in the quarter, the FY05 period saw 33% growth for this segment. As a result of the strong growth, the business' share in total revenues has gone up from 43% in 4QFY04 to nearly 46% in 4QFY05. The business formed nearly 39% of FY05 revenues. However, margins saw some pressure in the quarter, though for the full year there was an improvement.

Stationary business:  This segment stood out of the crowd as far as margins are concerned, which stood at close to 27% in the quarter as compared to 9% in 4QFY04. This mainly aided to the bottomline for the year as well as quarter.

Margins:  The company was able to expand its operating margins by 310 basis points, almost double of what it was in FY04. As can be seen from the table below, Stationary, which accounted for 14% of 4QFY05 revenues, yielded a margin of close to 27% as compared to the overall business's 6.5% margin in the quarter. This and the fact that Gifts margins too improved aided profitability growth. The discontinuation of the loss making perfumes business too helped the performance.

Cost break-up
as a % of net sales 4QFY04 4QFY05 FY04 FY05
Total Cost of goods 36% 40% 35% 36%
Staff Cost 11% 9% 9% 9%
Other Expenditure 50% 44% 41% 40%

What to expect?
In the last 5 years (till FY05), the company's revenues have clocked an insignificant 2.4% CAGR. There was a time when 'Archies' was considered to be in the right business, when cards were in vogue. The arrival of Internet and new competition has changed all that.

At Rs 120, the stock trades at a P/E of 12 times its FY05 earnings and market cap to sales of 1x. The board has declared a dividend of Rs 2 per share (yield 2%). Should the company sustain its growth in the gifts business, things may look up for this company. At the end of FY05, the company had outlined plans to add 100 retail stores over the next 5 years (till 2009). This reach may help it improve its volumes, but this may also entail cash flow pressure in the medium to long term. At the current juncture, though valuations look attractive, growth sustainability is a concern.

To Read the Full Story, Subscribe or Sign In
To Read the Full Story, Subscribe or Sign In


Covid-19 Proof
Multibagger Stocks

Covid19 Proof Multibaggers
Get this special report, authored by Equitymaster's top analysts now!
We will never sell or rent your email id.
Please read our Terms

ARCHIES LTD SHARE PRICE


Sep 23, 2020 03:33 PM

TRACK ARCHIES LTD

  • Track your investment in ARCHIES LTD with Equitymaster's Portfolio Tracker. Set live price alerts, get research alerts and more. Get access now...
  • Add To MyStocks

ARCHIES LTD - BAJAJ CONSUMER CARE COMPARISON

COMPARE ARCHIES LTD WITH

MARKET STATS