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Reckitt: Slowing just a wee bit - Views on News from Equitymaster
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  • Nov 2, 2000

    Reckitt: Slowing just a wee bit

    Household care major, Reckitt & Colman, has recorded an 11% jump in turnover in the third quarter ended September 30, 2000. The company has declared a 16% jump in its bottomline during the period.

    (Rs m) 3QFY00 3QFY01 Change 9mFY00 9mFY01 Change
    Net Sales 1,335 1,485 11.3% 3,721 4,275 14.9%
    Other Income 9 4 -58.2% 42 61 47.7%
    Expenditure 1,242 1,390 11.9% 3,415 3,943 15.5%
    Operating Profit (EBDIT) 92 94 2.5% 306 332 8.5%
    Operating Profit Margin (%) 6.9% 6.4%   8.2% 7.8%  
    Interest 8 1 -86.1% 27 5 -83.1%
    Depreciation 30 32 5.3% 92 102 11.4%
    Profit before Tax 63 65 3.5% 229 287 25.2%
    Tax 11 6 -51.8% 62 78 24.2%
    Profit after Tax/(Loss) 52 60 15.6% 167 209 25.5%
    Net profit margin (%) 3.9% 4.0%   4.5% 4.9%  
    No. of Shares (eoy) 32.9 32.9   32.9 32.9  
    Earnings per share* 6.3 7.3   6.7 8.5  
    Current P/e ratio         29.6  

    Reckitt & Colman India (RCIL) is the market leader in the household care segment. Its portfolio includes ultramarine blue, antiseptics, polishes, cosmetics, insect repellants and pharmaceuticals. RCIL has strong brands in each product segment it operates in. These include Robin (liquid bleach), Cherry Blossom (shoe polish), Harpic (toilet cleaner), Mortein (insect repellent), Lizol (disinfectant), Colin (glass cleaner) and Woolite (fine-fabric washing liquid).

    The surge in the company's bottomline would have been higher had it not been for an 11% jump in its expenditure. The expenditure includes proportionate VRS expenses. If one were to dicard the VRS portion, then the profit before tax would show a jump of 33%.

    A huge decline in the company's interest outgo and tax provisioning also helped the company record this 15% growth in bottomline.

    Reckitt's nine month consolidated figures indicate a 15% jump in turnover and a significant 26% jump in its bottomline. Here again, if we exclude the VRS portion, the company's bottomline in real terms surges by 33%.

    This is indeed a good performance by Reckitt, in light of the slowdown many FMCG companies are facing in their topline and bottomline growth. What is even more encouraging, is the company's efforts towards reducing its costs (through VRS and repaying its debts). All these efforts, especially the VRS is likely to add to the company's bottomline in future.

    At the current price of Rs 251, the stock trades at a P/e multiple of almost 30 times its annualised FY01 earnings. The company might just miss our estimates for FY01. We had predicted a 16% growth in Reckitt's topline and a 51% jump in its bottomline during FY01. The company's higher depreciation provisioning has taken a toll on our profitability estimates.



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