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SBCH: Concerns surface - Views on News from Equitymaster
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  • Sep 11, 2001

    SBCH: Concerns surface

    SmithKline Beecham Consumer Healthcare (SBCH) is one of the few FMCG companies that had remained insulated from the economic downturn. Infact, in the first six months of FY02 (January-June 2001) sales growth was a significant 21% and bottomline growth was nearly 37%. However, data appearing in the news articles suggests that the company’s sales growth has been marginally negative for the month of July.

    This is a sign that the downturn is slowly catching up with food processing companies as well. If this trend continues then the company may fail to keep up with its 1HFY02 growth rate. Apart from this, another negative to watch out for in the 2HFY02 is that the full impact of the deferred tax would be felt on SBCH during the second half of this year. This is most likely to trim its bottomline growth for the full year FY02. There are also concerns over the parent’s 100% Indian subsidiaries.

    But apart from these negatives the company looks on a solid ground. The company’s brands continue to do well. The change in management doesn’t seem to have made a difference in the company’s dominance of the malted beverage market. The first half performance of the company reflects this. In the previous five years the company’s turnover has grown at a CAGR of 15% and the net profits at a CAGR of 24%. These figures are by far one of the best growth rates posted by an FMCG company. In future, apart from the minor hiccups mentioned above, SBCH is poised to continue its growth momentum.

    (Rs m) FY97 FY98 FY99 FY00 FY01 CAGR
    Gross sales 5,053 5,660 6,456 7,208 8,754 14.7%
    Net profit 469 620 814 976 1,119 24.3%
    NPM (%) 9.3% 11.0% 12.6% 13.5% 12.8%  

    Moreover, beyond 2001, SBCH is poised to reap the advantages of higher productivity through the new plant (to be commissioned in early 2002) and market expansion through lower-priced ‘Viva’ and ‘Maltova’, targeted at smaller town consumers.

    The stock is trading at Rs 436 at a P/e multiple of 18 times projected FY02 earnings (excluding impact of deferred tax). The stock has gained strength over the last couple of months. Though the valuations still look reasonable against the backdrop of SBCH’s growth momentum, deferred tax blues may restrict any upside movement in the short term.



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