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FMCG: June quarter synopsis - Views on News from Equitymaster
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  • Aug 16, 2001

    FMCG: June quarter synopsis

    The June quarter was nothing to write home about for the Indian consumer products sector. The FMCG sample that consists of HLL, Henkel, Gillette, Colgate and Reckitt recorded a marginal 2.3% topline growth during the quarter, with a net profit growth of 17% YoY (excluding extraordinary income).

    (Rs m) June Q01 June Q02 Change
    Net Sales 34,758 35,711 2.7%
    Other Income 899 1,020 13.5%
    Expenditure 30,824 31,277 1.5%
    Operating Profit (EBDIT) 3,934 4,435 12.7%
    Operating Profit Margin (%) 11.3% 12.4%  
    Interest 45 80 76.7%
    Depreciation 460 495 7.7%
    Profit before Tax 4,328 4,880 12.8%
    Tax 1,181 1,195 1.1%
    Extraordinary net income 0 1,188  
    Profit after Tax/(Loss) 3,147 4,873 54.9%
    Net profit margin (%) 9.1% 13.6%  
    No. of Shares (eoy) (m) 2,518.5 2,518.5  
    Earnings per share* 5.0 7.7  
    Current P/e ratio   14.6  

    The quarter's performance underlines the gravity of the difficult market conditions being faced by the FMCG majors. Though the sample does not include P&G Hygiene, the sample's story is for all to see.

    The saving grace for the sector was that sales grew at a faster clip than expenses, thus improving operating margins by 110 basis points. Therefore, despite a significant jump in interest costs net profits clocked double digit growth. HLL's significant extraordinary income contribution helped the sector rake in huge growth in profits.

    If we exclude HLL's numbers, the picture is entirely different. Though the net sales growth of the sample (minus HLL) is over 7%, profits plunged by nearly 26%. A significant jump in both interest and depreciation costs coupled with a decline in other income contributed to the deflated earnings. Bottomline, with HLL, though turnover growth becomes sluggish, overall cost control helped the sector float above water in terms of profitability.

    Excluding HLL
    (Rs m) June Q01 June Q02 Change
    Net Sales 5,961 6,399 7.3%
    Other Income 125 108 -13.8%
    Expenditure 5,480 5,887 7.4%
    Operating Profit (EBDIT) 481 512 6.6%
    Operating Profit Margin (%) 8.1% 8.0%  
    Interest 24 58 145.1%
    Depreciation 130 167 28.9%
    Profit before Tax 453 395 -12.7%
    Tax 173 177 2.1%
    Extraordinary net income 0 -11  
    Profit after Tax/(Loss) 279 207 -25.9%
    Net profit margin (%) 4.7% 3.2%  
    No. of Shares (eoy) (m) 317.9 317.9  
    Earnings per share* 3.5 2.6  
    Current P/e ratio   6.7  

    Another interesting twist to the sector sample comes when we deduct Gillette's numbers from the sample. Then the three companies in the sample viz. Colgate, Henkel and Reckitt, record a 4.6% growth in topline in June quarter. However, their profits remain stagnant YoY at Rs 228 m (excluding extraordinary items). Since Gillette accounted a a bulk of the expenditure increases due to its merger blues with Duracell and Wilkinson, the performance (minus Gillette) is somewhat better, as profits do not get pruned.

    The FMCG sector's overall P/e is 14.6x annualised June quarter earnings. Excluding HLL, the valuations plunge even further. Minus HLL, the sector P/e stands at 6.7 times annualised June quarter earnings. The contrast in the valuations brings to the fore the market's view on HLL's strength's and the premium they attach to it.



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