Cadbury India: Missing 'Diwali' sweetness - Views on News from Equitymaster

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Cadbury India: Missing 'Diwali' sweetness

Nov 1, 2001

Cadbury India seems to have been affected by the difficult market conditions finally. As against an 11% topline growth in the June quarter, the company's sales have grown by only 5% in 3QFY02. The company's bottomline has shown 12% growth (excluding extraordinary items) during the same period.

(Rs m) 3QFY01 3QFY02 Change 9m FY01 9m FY02 Change
Net Sales 1,867 1,964 5.2% 4,331 4,648 7.3%
Other Income 23 25 10.7% 44 66 49.5%
Expenditure 1,539 1,612 4.7% 3,638 3,870 6.4%
Operating Profit (EBDIT) 328 352 7.4% 693 779 12.4%
Operating Profit Margin (%) 17.6% 17.9%   16.0% 16.8%  
Interest 6 6 -4.7% 22 16 -24.2%
Depreciation 67 73 9.1% 162 182 12.4%
Profit before Tax 277 298 7.6% 553 646 16.8%
Exceptional items 6 -9 - 20 -2 -
Tax 106 106 0.9% 204 243 19.4%
Profit after Tax/(Loss) 178 183 2.6% 369 401 8.7%
Net profit margin (%) 9.5% 9.3%   8.5% 8.6%  
No. of Shares (eoy) (m) 35.7 35.7   35.7 35.7  
Diluted Earnings per share* 19.9 20.4   13.8 15.0  
*(annualised)            
Current P/e ratio   19.0     25.9  

The company continues to endeavor to reduce its raw material costs. As a percentage of sales, raw material costs went down by a significant 350 basis points to 38.3% in the first nine months of FY02 (January-September 2001). However, the company's advertising costs went up by 9% during these nine months as against a 7% growth in topline during the period.

(Rs m) 3QFY01 3QFY02 Change 9m FY01 9m FY02 Change
Raw material 768 740 -3.6% 1,811 1,778 -1.8%
Staff 170 180 5.9% 411 461 12.4%
Advertising/marketing 226 229 1.3% 480 524 9.2%
Others 375 463 23.4% 1,023 1,177 15.0%
Total expenditure 1,539 1,612 4.7% 3,724 3,940 5.8%

As a result of the control on expenses, operating margins improved marginally to 17.9% during 3QFY02. Cadbury has clarified that the festive season sales are only partially covered in 3QFY02 since Diwali will fall in 4QFY02 (last year Diwali sales were included in 3QFY01). Based on this, one can look forward to better topline growth in the December quarter.

We have projected a 12% growth in Cadbury's topline (Rs 6,308 m) in FY02. Bottomline projection is pegged at Rs 580 m (up 16% YoY). Going by the company's statement that festive season sales have yet to be accounted for and on the premise that the launch of new brand 'Temptations' and relaunch of key brands would provide an impetus to topline, we believe that Cadbury India is likely to meet our FY02 projections. At the current price of Rs 388 the stock trades at a P/E of 24x projected FY02 earnings.


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