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Indian Shaving: Expenditure prone

Nov 3, 2000

Indian Shaving Products Limited (ISPL), the Indian arm of Gillette, has recorded a 16% growth both in turnover and net profit in the third quarter ended September 30, 2000. The company saw a sharp jump in interest outgo during the period.

(Rs m)3QFY003QFY01Change9mFY009mFY01Change
Net Sales62873116.3%1,6482,08126.3%
Other Income825216.7%28105269.6%
Expenditure52061317.9%1,3681,82633.5%
Operating Profit (EBDIT)1081188.7%281256-8.9%
Operating Profit Margin (%)17.2%16.1%17.0%12.3%
Interest 819151.3%294969.0%
Depreciation263225.1%79857.6%
Profit before Tax839110.1%20122712.6%
Tax35351.4%688220.3%
Profit after Tax/(Loss)485616.4%1331458.6%
Net profit margin (%)7.7%7.7%8.1%7.0%
No. of Shares (eoy)12.912.912.912.9
Earnings per share*15.017.513.815.0
*(annualised)
Current P/e ratio46.4

ISPL is a significant player in Rs 5 bn Indian shaving blade market. It has over 40% value market share in the shaving products business. Its products are marketed under two main umbrella brands; 7 'O Clock and Gillette.

On a nine month consolidated basis, the company's performance looks grim. Though the company's turnover has shown a remarkable 26% jump in turnover during the period, its bottomline has shown a staid 9% growth. This is largely as a result of a significant jump in ISPL's expenditure. Its advertising and sales promotion expenses shot up by 80% during the nine month period to Rs 259 m. Overall its expenditure surged 34%. The company's interest outgo also saw a 69% jump.

Its amalgamation with Duracell India and Wilkinson Swords will start showing affect from the next quarter onwards. Though these amalgamations (especially wih Wilkinson) will help ISPL make inroads into the lower segment of the market, but the bottomline and profit margins will remain depressed since both the amalgamated companies are making meager profits.

At the current price of Rs 696, ISPL's stock trades at a P/e multiple of 46 times its FY01 annualised earnings. The company's stock tradationally has traded between 60 to 70 times its earnings. Going by its difficult short term outlook, the stock is unlikely to show much re-rating. On the longer term horizon, the company's brand name and business presence augur well for the investors.

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