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Archies: Signs of improvement - Views on News from Equitymaster
 
 
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  • Jun 12, 2002

    Archies: Signs of improvement

    Greetings and gifts major, Archies, has recorded a much better performance in FY02. The company logged in an 18% YoY topline growth in FY02, as compared to a 4% decline during FY01.

    (Rs m) FY01 FY02 Change
    Net Sales Turnover 682 805 18.1%
    Other Income 6 5 -16.0%
    Expenditure 528 670 26.9%
    Operating Profit (EBDIT) 154 135 -12.2%
    Operating Profit Margin (%) 22.6% 16.8%  
    Interest 8 8 -3.7%
    Depreciation 12 14 16.0%
    Profit before Tax 140 119 -15.2%
    Tax 49 44 -10.8%
    Profit after Tax/(Loss) 91 75 -17.6%
    Net profit margin (%) 13.4% 9.4%  
    No. of Shares (eoy) (m) 6.5 6.5  
    Earnings per share* 14.1 11.6  
    Current P/e ratio   11.8  
    *(annualised)      

    However, despite the improvement in topline numbers, the slide in Archies bottomline continued in FY02. The company's bottomline declined by 18% YoY in FY02 compared to a much sharper 32% decline in FY01 net profit. The company's operating margins have fallen consistently in the last couple of years. In FY00 the company's operating margins peaked at over 29%, before falling to 23% in FY01 and again to 17% in FY02.

    Cost break-up
    (Rs m) FY01 FY02 Change
    Material cost 243 299 22.7%
    Staff cost 47 58 21.9%
    Other exp. 237 313 32.3%
    Total expenses 528 670 26.9%

    In FY02, Archies saw a 27% surge in operating costs which clipped its operating margins. Material costs surged 23% and staff costs by 22%. Since FY01 the company has been faced with competition both from peers as well as from online (web-based) greeting card players. In order to nip the competition in its bud the management invested to get an online presence. The company also worked towards enhancing its distribution strengths as well as in improving its supply chain. All this have meant higher costs.

    At Rs 137 the stock trades at a P/E of nearly 12x FY02 earnings. The stock has nearly doubled in the last six months anticipating an improved performance. The stock's current price is near to its 52 week high of Rs 151. Though Archies is likely to dominate the greeting cards and gifts scene in India, in the near term the company has to look at improving its profit growth.

     

     

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