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Nirma: Deferred tax does it in

Jun 10, 2002

Nirma Limited, one of India's largest branded detergent companies, has done quite well on the operational level during FY02. Though the company saw a 6% fall in FY02 topline, its operating expenses fell at a faster clip. Consequently, operating margins improved by 140 basis points to 25.8%.

(Rs m) 4QFY01 4QFY02 Change FY01 FY02 Change
Net Sales Turnover 4,929 4,516 -8.4% 20,521 19,302 -5.9%
Other Income 39 35 -9.8% 123 184 49.5%
Expenditure 3,754 3,170 -15.6% 15,514 14,317 -7.7%
Operating Profit (EBDIT) 1,175 1,346 14.5% 5,007 4,985 -0.4%
Operating Profit Margin (%) 23.8% 29.8%   24.4% 25.8%  
Interest 277 195 -29.8% 1,007 1,057 5.0%
Depreciation 406 312 -23.4% 1,403 1,221 -13.0%
Profit before Tax 530 875 65.0% 2,720 2,891 6.3%
Prior period items 1 -1   8 -7  
Tax 49 590 1104.9% 231 1,037 348.8%
Profit after Tax/(Loss) 481 284 -41.0% 2,497 1,847 -26.0%
Net profit margin (%) 9.8% 6.3%   12.2% 9.6%  
No. of Shares (eoy) (m) 79.4 79.4   79.4 79.4  
Earnings per share* 24.3 14.3   31.5 23.3  
Current P/e ratio   17.8     10.9  

It was more or less the same story in 4QFY02 numbers. The topline saw over 8.4% fall indicating difficult market conditions, but stricter control on costs helped the company put in a 600 basis point improvement in operating margins to nearly 30%.

Nirma's 4QFY02 performance was much better at the operational level. What's more, the company managed to cut its debt servicing costs (interest) and depreciation provisioning considerably. Consequently, in 4QFY02 profit before tax growth stood at 65% (as compared to a staid 6% in FY02). However, taxation blues hit Nirma's numbers as the deferred tax haunted profits. Tax burden increased significantly thereby resulting in a 26% dip in net profit during FY02. The dip in bottomline was more acute at 41% during 4QFY02.

Cost break-up
(Rs m) FY01 FY02 Change
Material cost 12,240 10,875 -11.2%
Staff cost 448 377 -15.9%
Other exp. 2,826 3,066 8.5%
Total expenses 15,514 14,317 -7.7%

Nirma's strict cost controls have come largely as a result of its backward integration drive. Over the last 5 years Nirma has made a capex of almost Rs 20 bn towards backward integration. In the foreseeable future, the only major capex will be incurred on debottlenecking and expansion of the Soda Ash plant from 420 THTPA to 650 THTPA by December 2002.

At the current price of Rs 254 the stock trades at 11x its FY02 earnings. Going forward the company's sharp improvement at operational level should enthuse investors.

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