Gillette India’s 2QFY04 topline performance might look disappointing at one glance but for the fact that previous period figures are incomparable due to demerger of the company’s Geep battery business and discontinuation of some of the product lines. Despite that, if one were to consider the company’s profits growth and improved operating margins, the picture looks promising.
On a YoY basis, while Gillette has posted a decline of over 13% in its topline, a relatively higher decline on the expenditure front has percolated down to make the bottomline growth look significant. Reduction in expenditures has also helped the company improve its operating margins substantially in 2QFY04 and 1HFY04.
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Gillette’s move of restructuring its business portfolio seems to have borne fruit as can be seen in relatively higher decline on its expenditure front (relative to topline decline) and its consequent effect on bottomline performance. For 2QFY04, the substantial reduction in expenditure has been mainly brought about by a 54% dip in raw material costs. In 2QFY04, these costs were around 28% of revenues as compared to 53% in 2QFY03. Also, personnel and other expenses have declined by 8% and 7% respectively. This has had an effect on reduction in expenditure for 1HFY04 as well and the same has declined by 22% on a YoY basis.
At the current market price of Rs 486, the stock is trading as a P/E multiple of 29x its annualised 1HFY04 earnings. After the divestment of its Geep battery business, Gillette is now focusing its efforts to grow in the personal care business where it has products in shaving and oral care segments. The stock has gained over 23% since the day it announced its 2QFY04 results. From here, the stock is likely to see further strength only when further clarity emerges on the growth of its personal care business.
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