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Gillette: Turnaround continues - Views on News from Equitymaster
 
 
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  • Aug 6, 2003

    Gillette: Turnaround continues

    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.

    (Rs m) 2QFY03 2QFY04 Change 1HFY03 1HFY04 Change
    Net Sales 1,102 953 -13.5% 1,823 1,811 -0.7%
    Other Income 31 31 -1.0% 48 59 22.6%
    Expenditure 970 631 -35.0% 1,677 1,309 -22.0%
    Operating Profit (EBDIT) 132 322 144.2% 146 502 243.5%
    Operating Profit Margin (%) 12.0% 33.8%   8.0% 27.7%  
    Interest 16 0 -100.0% 28 0 -99.6%
    Depreciation 47 47 0.2% 101 86 -14.9%
    Profit before Tax 101 307 203.1% 65 475 627.6%
    Extraordinary items 0 -13 -   -21  
    Tax 58 106 82.2% 48 185 282.0%
    Profit after Tax/(Loss) 43 188 338.0% 17 270 1485.9%
    Net profit margin (%) 3.9% 19.7%   0.9% 14.9%  
    No. of Shares (eoy) (m) 32.6 32.6   32.6 32.6  
    Diluted Earnings per share* 5.3 23.1   1.0 16.5  
    P/E ratio   21.1     29.4  
    *(annualised)            

    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.

    Cost break-up
    (Rs m) 2QFY03 2QFY04 Change 1HFY03 1HFY04 Change
    Raw material 582 270 -53.7% 898 620 -31.0%
    Staff 93 86 -7.8% 175 175 -0.2%
    Others 295 275 -6.7% 604 514 -14.9%
    Total expenditure 970 631 -35.0% 1,677 1,309 -22.0%

    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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