X

Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.


Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Reckitt: Ad budget hits margins… - Views on News from Equitymaster
 
 
  • PRINT
  • E-MAIL
  • FEEDBACK
  • A  A  A
  • Jul 31, 2002

    Reckitt: Ad budget hits margins…

    Household cleaning products major, Reckitt Benckiser India Limited (Reckitt), has recorded a 7% dip in 2QFY03 topline and over 11% decline in net profit during the quarter. However, compared to the March quarter where it declared a 22% decline in sales and ended the quarter with Rs 22 m loss, the June quarter results are much better. Also, the dip in topline is small considering that last year's figures include the contribution from Reckitt Piramal, the company's erstwhile marketing joint venture, which was discontinued in July 2001.

    (Rs m) 2QFY02 2QFY03 Change 1HFY02 1HFY03 Change
    Net Sales 1,382 1,291 -6.5% 2,858 2,447 -14.4%
    Other Income 18 31 73.9% 26 58 124.5%
    Expenditure 1,233 1,248 1.2% 2,576 2,417 -6.2%
    Operating Profit (EBDIT) 149 43 -71.1% 282 30 -89.5%
    Operating Profit Margin (%) 10.8% 3.3%   9.9% 1.2%  
    Interest 7 0 -98.5% 0 1 200.0%
    Depreciation 30 32 8.0% 32 60 86.6%
    Profit before Tax 130 41 -68.2% 275 27 -90.3%
    Tax 82 -5 - 114 -11 -
    Extraordinary expenses (VRS) -11 -13 - -21 -27 -
    Profit after Tax/(Loss) 37 33 -11.1% 141 11 -92.1%
    Net profit margin (%) 2.7% 2.5%   4.9% 0.5%  
    No. of Shares (eoy) (m) 32.9 32.9   32.9 32.9  
    Diluted Earnings per share* 4.5 4.0   8.6 0.7  
    *(annualised)            
    Current P/e ratio   62.0     366.2  

    Though the company has managed to cut material costs by nearly 13%, a higher advertising budget has taken the wind out of operating margins. The company finished the quarter with very low operating margins, as ad budgets to sales ratio zoomed from 11.4% in 2QFY02 to 21.2% in 2QFY03. A similar trend was witnessed in FY02 results as well where ad expenses had shot up by 50% YoY. A higher other income and lower taxes saved the day for Reckitt.

    Cost break-up
    (Rs m) 2QFY02 2QFY03 Change 1HFY02 1HFY03 Change
    Raw material 717 622 -13.3% 1,543 1,117 -27.7%
    Staff 116 128 9.5% 215 239 11.3%
    Advertising 157 274 74.5% 314 551 75.4%
    Others 253 238 -6.0% 515 524 1.7%
    Total expenditure 1,244 1,261 1.4% 2,587 2,430 -6.1%

    The past year has not been good for the company as it lost the ambitious, Mr. Pranab Barua as MD. Also, due to the company's Reckitt Piramal JV call off, Reckitt could not concentrate on the brands under this JV mainly Dettol and Disprin and also on its growth strategy for the household cleaning segment.

    The stock is range bound at Rs 247, largely due to the fact that Reckitt's first open offer to buyback shares at Rs 250 per share, resulted in the parent hiking its stake to 87.3% currently (from 51% earlier). The parent has given a second buyback offer to the remaining shareholders, again at Rs 250 in an effort to take the company private. If the parent is successful in acquiring over 90% of stake, then Reckitt India is most likely to vanish from the Indian bourses soon. Given the company's recent staid performance, investors are likely to accept the open offer and exit the stock. Even if some investors don't, they run the risk of being marginalised as liquidity in the stock is likely to dry up.

    Having said that, the Reckitt management sees India as a big market in the coming years and thus has decided to take the company private when the valuations are seemingly low. With more MNC companies following the same pattern, the Indian investors will slowly see a dearth of quality companies to invest in. Stock picking is likely to become even more important going forward. Also, in the FMCG spectrum, investors might take a second look at domestic companies for growth.

     

     

    Equitymaster requests your view! Post a comment on "Reckitt: Ad budget hits margins…". Click here!

      
     

    More Views on News

    Marico: Earnings Hit by Lower Volumes and Firming Input Prices (Quarterly Results Update - Detailed)

    Aug 9, 2017

    While GST implementation brought down volumes and profitability in the short run, Marico remains optimistic in the long run.

    More Views on News

    Most Popular

    Demonetisation Barely Made Any Difference to Tax Collections(Vivek Kaul's Diary)

    Aug 7, 2017

    The data tells us quite a different story from the one the government is trying to project.

    A 'Backdoor' to Multibaggers: It's Like Investing in Asian Paints Ten Years Ago(The 5 Minute Wrapup)

    Aug 10, 2017

    Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.

    Should You Invest In Bharat-22 ETF? Know Here...(Outside View)

    Aug 8, 2017

    Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    7 Financial Gifts For Your Sister This Raksha Bandhan(Outside View)

    Aug 7, 2017

    Raksha Bandhan signifies the brother-sister bond. Here are 7 thoughtful financial gifts for sisters...

    More
    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407
     

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms

    TRACK RECKITT BEN.

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

    MARKET STATS