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Cadbury: Will it 'Perk'? - Views on News from Equitymaster
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  • Jul 12, 2001

    Cadbury: Will it 'Perk'?

    Chocolate major, Cadbury India, is set to declare its second quarter results today. Given the tough scenario the FMCG sector has been facing these past few months, one does not expect a very encouraging performance.

    (Rs m) 1QFY01 1QFY02 Change FY01
    Net Sales 1,393 1,499 7.6% 6,711
    Other Income 17 19 8.7% 121
    Expenditure 1,191 1,247 4.8% 4,763
    Operating Profit (EBDIT) 203 252 24.1% 1,949
    Operating Profit Margin (%) 14.6% 16.8%   29.0%
    Interest 8 6 -28.9% 31
    Depreciation 50 58 15.5% 219
    Profit before Tax 162 207 27.9% 820
    Exceptional items -2 1   -3
    Tax 55 84 51.6% 297
    Profit after Tax/(Loss) 105 124 18.5% 520
    Net profit margin (%) 7.5% 8.3%   7.8%
    No. of Shares (eoy) (m) 23.8 35.7   35.7
    Earnings per share* 17.6 13.9   14.6
    Diluted Earnings per share* 11.7 13.9   14.6
    Current P/E ratio   29.5    

    In 1QFY02, Cadbury had posted a net profit of Rs 124 m (up 18.5% YoY). The company's turnover was up 8% during the period. The performance displayed signs of a slowdown as the company's turnover had grown by 12% in FY01 (YoY). Even more interestingly, the company's turnover growth in the first quarter of 2000 was nearly 17% YoY.

    However, the redeeming factor for this chocolate & confectionery major was that it improved operating margins by a significant 220 basis points. But it failed to convert this into a significant net margin improvement. A huge 52% jump in Cadbury's taxes during 1QFY02 hampered net profit growth. The company's interest burden declined by a significant 29% during the quarter.

    The company recorded a 2% volume growth in chocolates during April 2001 but its beverage volumes have declined by 3.6% during the same period. Its flagship brand 'Dairy Milk' has led the growth in chocolates. Cadbury has also relaunched the 'Five Star' bar in an effort to boost volumes, the effect of which will be seen in the third and fourth quarters. Cadbury is also looking at entering the confectionery segment in a big way, notwithstanding the failures it has experienced in this segment in the past.

    The stock price has come off by nearly 10% since the announcement of its 1QFY02 results. At the current price of Rs 409 the stock trades at a P/E multiple of nearly 30x its annualised 1QFY02 earnings. We have projected an 11% growth in the company's FY02E turnover and around 14% growth in profits. Based on our estimates, Cadbury trades at a P/E multiple of around 25x its FY02 projected earnings.

    All said and done, Cadbury dominates the chocolate scene in India and enjoys pricing power over consumers. On a longer term the company looks very strong. However, the near term growth depends on the company's ability to generate volumes in this difficult environment.



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