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Nirma: Deferred tax jinx…

Jul 30, 2002

One of India's foremost FMCG companies, Nirma Limited, has reported staid numbers in 1QFY03. A 4% growth in topline and over 5% growth in bottomline during the quarter refelcts the slowdown FMCG sector is facing. A huge dip in other income resulting in the staid bottomline growth despite improvement in operating margins.

(Rs m) 1QFY02 1QFY03 Change
Net Sales Turnover 5,335 5,528 3.6%
Other Income 71 28 -60.8%
Expenditure 4,167 4,252 2.0%
Operating Profit (EBDIT) 1,168 1,276 9.3%
Operating Profit Margin (%) 21.9% 23.1%  
Interest 306 190 -38.2%
Depreciation 299 291 -2.6%
Profit before Tax 633 823 30.1%
Prior period items 2 -6  
Tax 203 363 78.7%
Profit after Tax/(Loss) 432 455 5.3%
Net profit margin (%) 8.1% 8.2%  
No. of Shares (eoy) (m) 79.4 79.4  
Earnings per share* 21.8 22.9  
Current P/e ratio   10.9  

Nirma continued the trend seen overall in FMCG companies, that of improving operating efficiencies. The company's operating margins improved over 100 basis points to 23.1%. This seems a result of strict control on costs. A lower interest burden signals Nirma's efforts in repaying its debts.

An over 60% dip in other income (likely a result of softer interest rates) and a huge surge in taxes (due to deferred taxes) was largely responsible for the sluggish growth in net profits. If we notice, profit before tax has grown at over 30% YoY during 1QFY03.

Cost break-up
(Rs m) 1QFY02 1QFY03 Change
Material cost 3,358 3,401 1.3%
Staff cost 96 100 4.2%
Other exp. 714 751 5.3%
Total expenses 4,167 4,252 2.0%

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 Rs 250 the stock trades at 11x annualised 1QFY03 earnings and just 0.9x market cap to sales. Nirma tradationally is accorded lower valuations as compared to peers. With the economic downturn, growth has slowed down for Nirma, which operates on a value for money strategy.

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