Gillette India: Got 'nicked' this time too! - Views on News from Equitymaster

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Gillette India: Got 'nicked' this time too!

Oct 25, 2001

Gillette India has posted a net loss of Rs 6 m (excluding extraordinary VRS expenses)for the quarter ended September 30, 2001 as compared to a net profit of Rs 56 m in the previous year. However, the figures are not comparable as in September quarter last year the effect of Gillette's merger with Duracell and Wilkinson was not accounted for. As per the company's release, taking the merger effect, Gillette India posted Rs 14 m loss for the quarter ended September 30, 2000.

(Rs m) 3QFY01 3QFY02 Change 9m FY01 9m FY02 Change
Net Sales 731 1,325 81.4% 2,081 3,426 64.6%
Other Income 25 71 189.1% 105 102 -2.5%
Expenditure 613 1,316 114.6% 1,826 3,211 75.9%
Operating Profit (EBDIT) 118 9 -92.1% 256 216 -15.6%
Operating Profit Margin (%) 16.1% 0.7%   12.3% 6.3%  
Interest 19 34 79.1% 49 92 87.1%
Depreciation 32 72 125.4% 85 219 158.1%
Profit before Tax 91 -25   227 7 -96.7%
Tax 35 -20   82 -16  
Extraordinary expenses (VRS)   30     30  
Profit after Tax/(Loss) 56 -36   145 -6  
Net profit margin (%) 7.7% -2.7%   6.9% -0.2%  
No. of Shares (eoy) (m) 12.9 32.6   12.9 32.6  
Diluted Earnings per share* 6.9 -4.4   5.9 -0.3  
*(annualised)            

The comparative result table given above has last year's figures of only Gillette and not of the consolidated company (including Duracell and Wilkinson). So, the results are not strictly comparable. However, a look at the figures above does bring out the merger blues being faced by Gillette India. The company's depreciation and interest figures have zoomed and so has its operating expenditure.

Though the sales show an increase of 81% YoY, actually, the company's total income has increased from Rs 1,308 m in 3QFY01 to Rs 1,396 m in 3QFY02 (up 7% YoY) if the merger effect for both years' is considered.

On a nine month consolidated basis, Gillette India has posted a net profit of Rs 24 m (excluding extraordinary VRS expenses).

Gillette India has yet to get a hold on its operating expenses. The company has yet to come to terms with the merger. Though Wilkinson has given the company access to lower end blade market, the margins are lower there. Also, Duracell is facing difficulties due to the chinese imported cells (contraband) that are much cheaper. The company seems to be in a restructuring phase and it would take some time for Gillette to get its act together.

Despite the pressure the company is facing, the stock is still trading at Rs 270. This is probably because Gillette has strong brands (Gillette and 7'0 Clock) and the parent has shown in the past that India is an important market for them and going forward investors expect the company to get its act together. Though there may be some weight in that reasoning, there should be some improvement taking place in the numbers before one commits to the stock. In short, Gillette India has yet to prove that it can get out of this rut unscathed.


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