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Gillette: 'Shaving' focus pays

Oct 29, 2002

Shaving products major, Gillette India, has reported YoY 13% decline in net sales during the September quarter. However, the company has reported a significant improvement in bottomline. Gillette India finished 3QFY03 with Rs 81 m net profit, as compared to Rs 36 m net loss during 3QFY02.

(Rs m) 3QFY02 3QFY03 Change 9mFY02 9mFY03 Change
Net Sales 1,224 1,068 -12.8% 3,326 2,891 -13.1%
Other Income 71 9 -87.4% 102 57 -43.9%
Expenditure 1,215 889 -26.8% 3,110 2,566 -17.5%
Operating Profit (EBDIT) 9 179 1820.4% 216 325 50.6%
Operating Profit Margin (%) 0.8% 16.7%   6.5% 11.2%  
Interest 34 11 -68.7% 92 39 -57.9%
Depreciation 72 47 -34.2% 219 149 -32.1%
Profit before Tax -25 130 - 7 195 2533.8%
Tax -20 49 - -16 97 -698.1%
Extraordinary items -30 0 - -30 0 -
Profit after Tax/(Loss) -36 81 - -6 98 -
Net profit margin (%) -2.9% 7.6%   -0.2% 3.4%  
No. of Shares (eoy) (m) 32.6 32.6   32.6 32.6  
Diluted Earnings per share* -4.4 9.9   -0.3 4.0  
P/E ratio   30.6     75.8  
*(annualised)            

The results for the quarter and nine months are not comparable due to discontinuation of manufacturing operations at Duracell Manesar plant at the beginning of the year. Consequently, the export sale of batteries for the nine months of FY03 at Rs 12 m was significantly lower as compared to Rs 439 m in the corresponding period. However, on a like to like basis, sales for Gillette India grew by 3% YoY from Rs 3,101 m in 9mFY02 to Rs 3,193 m in 9mFY03.

The company has been in the throes of restructuring recently. The company decided to sell Duracell India plant to Duracell Belgium for a consideration of US$ 6.5 m. It closed the Duracell plant at Manesar and consequently took a hit of Rs 606 m for its closure. This component was largely the reason for Gillette India ending FY02 in red. Another major positive for the company is the capital grant of Rs 850 m (US$ 17.5 m) from its parent. The monies realised were to be used to retire debts and strive to make Gillette a zero debt company.

Cost break-up
(Rs m) 3QFY02 3QFY03 Change 9mFY02 9mFY03 Change
Raw material 675 446 -33.9% 1,730 1,344 -22.3%
Staff 96 89 -7.4% 268 264 -1.3%
Others 444 354 -20.3% 1,112 958 -13.9%
Total expenditure 1,215 889 -26.8% 3,110 2,566 -17.5%
* Others includes Rs 89 m as advertisement & sales promotion exp. in 3QFY03

Going by the decline in the company's interest burden, one can assum that the grant has been used to retire debts. Due to the exit from Duracell plant, the depreciation provisioning is also lower. The company's operating margins have improved to nearly 17% during 3QFY03 (up from 12% in 2QFY03). These are all signs that Gillette India is on the road to recovery.

Enthused by the results the stock has gained ground recently. At the current price of Rs 304 the stock is trading at 30.6x 9mFY03 annualised earnings. However, this parameter for valuation is not suitable for a company on the turnaround road. The market cap to sales stands at 2.6x 9mFY03 annualised sales. Going forward Gillette's operating performance should be even better. Also with Gillette India looking to hiving off its Geep Battery business the future looks even better for the company.


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