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Cadbury: Taking a bow…

Oct 31, 2002

Chocolate major, Cadbury India, has reported a strong performance for the September quarter. The company finished 3QFY03 with 11% growth in topline and nearly 19% growth in bottomline. The performance is much better than what it had reported till the first half of FY03 (5.5% topline growth and 10% bottomline growth excluding extraordinary income).

(Rs m) 3QFY02 3QFY03 Change 9mFY02 9mFY03 Change
Net Sales 1,964 2,179 11.0% 4,648 5,012 7.8%
Other Income 25 27 6.8% 66 70 6.6%
Expenditure 1,612 1,771 9.9% 3,870 4,183 8.1%
Operating Profit (EBDIT) 352 409 16.0% 779 829 6.4%
Operating Profit Margin (%) 17.9% 18.7%   16.8% 16.5%  
Interest 6 6 -6.6% 16 12 -23.9%
Depreciation 73 84 15.6% 182 206 13.0%
Profit before Tax 298 345 15.8% 646 680 5.3%
Exceptional items -9 2 - -2 96 -
Tax 106 131 23.1% 243 235 -3.4%
Profit after Tax/(Loss) 182 216 18.6% 401 541 35.0%
Net profit margin (%) 9.3% 9.9%   8.6% 10.8%  
No. of Shares (eoy) (m) 35.7 35.7   35.7 35.7  
Diluted Earnings per share* 20.4 24.2   15.0 20.2  
*(annualised)            
Current P/e ratio   20.4     24.4  

Historically, Cadbury has grown at a CAGR of 17% in terms of topline in the last decade. The company has been the undisputed king of the Indian chocolate market with a 70% share. However, over the last few quarters, not only the growth in chocolate market has slowed down, but Nestle India has emerged as a keen competitor to Cadbury. Infact, in 1QFY03, Nestle reported nearly 40% growth in its chocolates division. However, the spurt indicates that Cadbury has fought back well in September quarter.

Cost-break-up...
costs as a % of sales 3QFY02 3QFY03 9mFY02 9mFY03
Material costs 37.7% 35.3% 36.7% 36.3%
Staff costs 9.2% 8.7% 9.9% 9.6%
Advertising & Marketing 11.6% 13.3% 11.3% 12.9%
Other expenditure 23.6% 23.9% 25.3% 24.6%
Total expenditure 82.1% 81.3% 83.2% 83.5%

The company improved its operating margins led by lower raw material to sales ratio, indicating higher realisation for its products during the quarter. In recent times, not only has Cadbury repackaged most of its key brands (Dairy Milk, 5-star, Perk, Gems etc.), it has also introduced chocolate brands on covering each price point. At the lower end, there is a Rs 2 'Chocky' bar, at the higher end there is 'Temptations' at Rs 30. Apart from this, the company also introduced a new brand called 'Chunky' to expand its consumer base and also to upgrade its existing consumers. The company has launched bigger pack sizes for all its key brands in recent times.

The company has backed these new introductions with higher advertising and sales promotion. It is evident from the fact that Cadbury's advertising to sales ratio has inched up to 13.3% in 3QFY03 from 11.6% in corresponding quarter last year. And all this is showing on its bottomline.

On a nine month basis, Cadbury has reported an 8% topline and 11% bottomline growth excluding extraordinary income. During the June quarter, the company raked in Rs 108 m in the form of profit on sale of excess immovable property at Thane.

The management delisted the Cadbury stock from the BSE recently and NSE too is going to see a delisting soon. At the current price of Rs 493 (NSE), the stock trades at 24.4x its annualised 9mFY03 earnings. The stock has been range bound ever since the parent company's open offer at Rs 500 per share. The offer was a success and currently the promoters' hold 94% stake in Cadbury India. Due to this, liquidity in the stock has dried up.


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