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SBCH: Slowdown catches up - Views on News from Equitymaster
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  • Oct 19, 2001

    SBCH: Slowdown catches up

    Smithkline Beecham Consumer Healthcare Limited (SBCH) has posted a 7% decline in 3QFY02 net profit to Rs 283 m. If we exclude the extraordinary expense burden from last year's numbers then the profit has fallen by 13%. The decline in profits was primarily as a result of expenditure increasing at a faster clip than sales as well as increased taxation provisioning on account of deffered taxes. The tax burden went up by 64% YoY during the quarter. The company's sales (including excise) went up by over 9%.

    (Rs m) 3QFY01 3QFY02 Change 9m FY01 9m FY02 Change
    Gross sales 2,376 2,596 9.3% 5,907 6,870 16.3%
    Other Income 54 99 84.5% 218 252 15.2%
    Expenditure 1,918 2,118 10.5% 4,849 5,492 13.3%
    Operating Profit (EBDIT) 459 478 4.3% 1,058 1,378 30.2%
    Operating Profit Margin (%) 19.3% 18.4%   17.9% 20.1%  
    Interest (net) 13 28 119.5% 49 44 -9.9%
    Depreciation 33 34 1.5% 106 101 -5.2%
    Profit before Tax 466 515 10.5% 1,122 1,485 32.4%
    Tax 142 233 64.4% 293 490 67.1%
    Extraordinary expenses -22       -24  
    Profit after Tax/(Loss) 302 283 -6.5% 829 971 17.2%
    Net profit margin (%) 12.7% 10.9%   14.0% 14.1%  
    No. of Shares (eoy) (m) 45.4 45.4   45.4 45.4  
    Diluted Earnings per share* 26.6 24.9   24.3 28.5  
    Current P/e ratio   16.4     14.3  

    The performance shows signs of a slowdown hitting SBCH too. One must remember that in the first half of FY02 the company had notched up an impressive 21% growth in turnover. However, the performance is not strictly comparable as in the first half of the previous year sales were deflated due to subdued trading.

    The operating margins have declined by 90 basis points in the third quarter reflecting the difficult scenario the company must be facing. Its staff costs increased by 31% YoY during the quarter. However, the company's sterling first half performance has saved SBCH's nine month consolidated numbers. On a YoY basis, the nine month sales have improved by an encouraging 16%. The bottomline is up by 17%.

    Cost break-up
    (Rs m) 3QFY01 3QFY02 Change (%)
    Raw and packaging material consumption 857 783 -9%
    Staff costs 140 182 31%
    Advertising/promotion 179 194 9%
    Other expenses 422 554 31%
    Patents 12 12 1%
    Deffered revenue expenditure 10 13 24%

    However, as we had warned earlier too, the deffered tax burden as well as the slowdown has affected SBCH's growth momentum. The company is likely to match our turnover projections for FY02 (Rs 8.6 bn), however, the bottomline projections are likely to fall short due to the deffered tax burden. We would have to adjust the taxation numbers in our projections.

    At the current market price of Rs 409 the stock trades at a P/E of 14x annualised nine month FY02 earnings. In the short term the stock may feel the pressure on valuations because of its performance going forward. However, SBCH in the long term looks attractive even at these valuations.



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