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Nirma: Debt restructuring relief - Views on News from Equitymaster
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  • Nov 7, 2002

    Nirma: Debt restructuring relief

    One of India's foremost FMCG companies, Nirma Limited, reported nearly 50% rise in September quarter net profit recently. The rise was on the back of a marginal improvement in 2QFY03 topline.The bottomline improvement was largely a result of debt restructuring benefits and lower tax provisioning.

    (Rs m) 2QFY02 2QFY03 Change 1HFY02 1HFY03 Change
    Net Sales Turnover 4,543 4,572 0.6% 9,878 10,100 2.3%
    Other Income 37 53 42.4% 108 81 -25.1%
    Expenditure 3,379 3,452 2.2% 7,546 7,704 2.1%
    Operating Profit (EBDIT) 1,164 1,120 -3.8% 2,332 2,396 2.8%
    Operating Profit Margin (%) 25.6% 24.5%   23.6% 23.7%  
    Interest 303 130 -57.2% 609 319 -47.6%
    Depreciation 310 319 2.7% 610 610 0.1%
    Profit before Tax 588 724 23.2% 1,221 1,547 26.8%
    Prior period items -1 -13 - 1 -19 -
    Tax 242 196 -19.0% 445 559 25.5%
    Profit after Tax/(Loss) 344 515 49.5% 776 969 24.9%
    Net profit margin (%) 7.6% 11.3%   7.9% 9.6%  
    No. of Shares (eoy) (m) 79.4 79.4   79.4 79.4  
    Earnings per share* 17.3 25.9   19.6 24.4  
    Current P/e ratio   9.4     10.0  

    Nirma saw a marginal dip in operating margins for the quarter, indicating that costs increased at a faster clip than sales. The company's raw material cost to sales ratio increased to 55.4% during the quarter. However, with interest burden lowering by more than half and around 19% dip in tax provisioning, the company finished with nearly 50% net profit growth.

    Cost break-up
    (Rs m) 2QFY02 2QFY03 Change 1HFY02 1HFY03 Change
    Material cost 2,470 2,535 2.7% 5,828 5,936 1.9%
    Staff cost 95 97 2.3% 191 197 3.3%
    Other exp. 814 820 0.7% 1,528 1,571 2.8%
    Total expenses 3,379 3,452 2.2% 7,546 7,704 2.1%

    In June quarter too, the company's interest burden saw a significant dip, but higher taxes saw profit growth at a staid 5%. Consequently, on a half yearly basis (1HFY03), the company's bottomline growth stands reduced at 25% YoY. Also, higher growth in other income in 2QFY03 has saved the day for Nirma. It looks like the company managed to free some cash as a result of debt restructuring and hence, the higher other income.

    Meanwhile, Nirma's backward integration drive continues. The company's debottlenecking and expansion of the Soda Ash plant in Gujarat from a capacity 420 THTPA to 650 THTPA is on schedule for completion by December 2002. The exercise involved a capex of over Rs 957 m by the company. Over the last 5 years Nirma has made a capex of almost Rs 20 bn towards backward integration. This backward integration drive has helped Nirma maintain healthy margins, while making available its products at competitive rates.

    At Rs 244 the stock trades at 10x annualised 1HFY03 earnings and 1x market cap to sales. Nirma traditionally is accorded lower valuations as compared to peers owing to the family run nature of the company. With the economic downturn, bigger companies like Hindustan Lever have stepped on the competitive gas. This has put pressure on Nirma's growth, which operates on a value for money strategy.



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