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Archies: Speed breaker Ahoy! - Views on News from Equitymaster
 
 
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  • Nov 22, 2000

    Archies: Speed breaker Ahoy!

    Archies Greetings & Gifts is India’s largest creator and distributor of greeting cards, stationery, gifts and related social expression products. It commands 45% of the Rs 3 bn Indian greeting cards market. Apart from selling cards under its own label, it sells Gibsons, Paper Magic and Paper Rose cards through a licencing arrangement with global majors. The company has also diversified into marketing music CDs, cassettes and perfumes. Almost 70% of its FY00 revenues came from selling greeting cards.

    In addition to regular card and music stores, Archies has set up a nationwide retail network of over 440 franchisee outlets in India and abroad: Archies galleries, Archies card shops and Paper Rose shoppes. In FY00, the company also set up a website (www.archiesonline.com) to sell cards and gifts through the Internet.

    The company has been maintaining a steady growth momentum. In FY00, Archies reported a 52% jump in its bottomline to Rs 134 m, on the back of an 18% growth in turnover. The company’s turnover has grown at a compounded annual growth rate (CAGR) of 28% since FY97. Its profits have grown at a CAGR of 77% during the same period.

    In a bid to expand its market, Archies has continually promoted/branded new occasions on which people can send greetings. Some examples being, Friendship day, Rakhi greetings, Mother’s Day, Id greetings and Teacher’s day cards. It has also introduced regional language cards in Hindi, Gurmukhi and Marathi. Archies has also targeted to sell cards and gift articles to corporate clients, which include Reliance, Bank of America, Dabur, LIC and Samsung.

    Rather than selling film music (which is already overcrowded and competitive), Archies is expanding its music business by introducing new artistes. The company is looking at carving a niche, which seems like a good strategy. This not only saves its from the competition in other segments, but is also less expensive in terms of promotion.

    However, the entry of global majors like Hallmark can upset the applecart for Archies in the long term. The momentum is already showing signs of slowing down. The company’s turnover was lower (down 4%) in 1HFY01, as compared to 1HFY00. The company’s profits too, declined by 8% during this period. Going by the first half performance, it is unlikely that Archies will be able to maintain its historical CAGR.

    At the current price of Rs 208, the stock trades at 10 times its 1HFY01 annualised earnings.

     

     

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