Archies: E-card blues - Views on News from Equitymaster

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Archies: E-card blues

Aug 13, 2001

Archies Greetings' bad patch continues. In 1QFY02 the gift and greeting cards major has reported a 38% decline in net profit to Rs 16 m. This is despite a 10% growth in topline during the period under review.

(Rs m)1QFY011QFY02Change
Gross Sales 11312510.3%
Other Income21-65.6%
Expenditure8510422.5%
Operating Profit (EBDIT)2821-26.8%
Operating Profit Margin (%)24.8%16.4% 
Interest1250.0%
Depreciation3326.3%
Profit before Tax2616-37.9%
Tax00-
Profit/(Loss) after Tax2616-37.9%
Net profit margin (%)22.8%12.8% 
No. of Shares (eoy) (m)6.56.5 
Diluted earnings per share*15.89.8 
P/E ratio 4.4 
* (annualised)   

In FY01, Archies had reported a 4% decline in topline and a significant 32% decline in net profit. One of the key reasons for Archies bad patch is that its turnover growth has not kept pace with expenditure, which continues to grow at a faster clip.

One of the reasons for mounting expenditure is that the company is expanding and upgrading its distribution network. During the June quarter, Archies added 8 franchisees, taking the total tally to 513 (including 27 company owned/managed outlets). The Company has also opened its branch offices at Calcutta, Noida & Chennai.

The Internet boom has also taken a toll on the company's growth. Since a lot of youngsters send cards through the net (e-cards), which are free, Archies business has suffered. Though Archies has spent a considerable amount to set up its own Internet presence, the cost free nature of the Internet means negligible returns, atleast for now. Added to this, Archies had diversified into cutting out music albums. After showing initial promise this business is now shorn of momentum.

At Rs 44 the stock trades at a P/e multiple of 4.4 times 1QFY02 annualised earnings. Though Archies has not done too well in the recent past, once its distribution upgradation and expansion plans consolidate, the company could again gain momentum as expenses stabilise. With some Internet majors already toying with the idea of charging for e-mail and other services, things may change on this front too. But these are all long term positives.

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