X

Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.


Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Volume growth for value (creating) strategy - Views on News from Equitymaster
 
 
  • PRINT
  • E-MAIL
  • FEEDBACK
  • A  A  A
  • Dec 25, 1999

    Volume growth for value (creating) strategy

    It promises you the real taste of life and has been delivering value to its shareholders too.

    A 51% subsidiary of the Cadbury Schweppes,Cadbury India (Cadbury) is the undisputed chocolate king of the country. The brand name 'Cadbury' is synonymous with chocolates in India and has a strong brand appeal. The company has leading brands in all segments viz. 5 star (countlines), Dairy Milk (bars), Gems (panned confectionery), Eclairs (toffees) and Perk (wafer chocolates).

    The company has a 70 percent bite of the 23,000 tonne Indian chocolate market. It is also a player in the malted food market (Bournvita enjoys a 24 percent share of the 20,000 tonne brown drinks market) and last year it ventured into the 120,000 tonne sugar confectionery market ('Googly').

    Over the past two year's Cadbury has redefined the basic tenets of the chocolate confectionery industry

    • The traditional market position of being a children's product was expanded to include adults.
    • It launched and promoted new varieties, introduced new flavours and tried to change consumption patterns: position for instance, chocolates as a snack food. As a result of these efforts the wafer chocolate category was revived.
    • It developed lower-priced products and focussed on bit-sized chocolates (sachets) to induce trial
    • Aggressive promotion and advertising put chocolate into the consumers buying patterns.

    Although some of these measures were responsive strategies adopted by Cadbury to take on Nestle's onslaught they succeeded in arousing interest in a dormant market.

    Future revenue growth will be through increasingly higher volumes rather than price increases. The management believes that price increase can only be a short term objective. It is volumes, which are very important to achieve the long-term goal of having a wide consumer base. 'Business can't shrink to greatness', that's the management credo. Multinationals such as Hindustan Lever and Nestle India share this philosophy.

    Despite the fact that the company has come off a Rs 1 billion capital expenditure over the last two years there is a possibility that some capex will still be required to take care of the growth over the next two/three year's. This will be so since the company has plans to introduce 1 new product in chocolate confectionery and 2 new products in sugar confectionery at all appropriate price points. (The company has set a target of 12 percent volume growth and 20 percent value growth over the next two year's.) There is no possibility of an equity dilution though.

    (Rs m) 3QFY2000 3QFY1999 Change
    Sales 1,668 1,475 13.1%
    Other Income 31 6 436.8%
    Expenditure 1,424 1,250 14.0%
    Depreciation 63 60 5.3%
    Interest 9 23 -62.2%
    Profit before Tax 202 148 36.7%
    Tax 66 44 48.8%
    Profit after Tax 136 104 31.6%
    Net profit margin 8.2% 7.0%  

    Advertisement expenditure has been rising by 1 percent on an average over the last three year's and will only increase further. Apart from the fact that Cadbury itself would be making rapid fire launches, competition from the likes of Nestle and Mars won't be far behind. That is likely to force the company in raising decibel levels too.

    Raw materials, particularly cocoa, account for 30% of Cadbury's turnover. A perennial cocoa shortage has made Cadbury highly dependent on imports (40% of requirement). International cocoa prices however, have dropped almost 35% in the current year. This should provide a cushion to the company's margins well into the first quarter of next year too.

    Distribution has and will continue to play an important role, in fact more so, in Cadbury's value creating strategy. The company reaches over 300,000 retailers through 27 depots and 1900 distributors. This will only increase in the future as the company's focus increasingly shifts to small towns.

    The stock has almost doubled over the past twelve months and discounts the 1999 performance (estimate sales Rs 5.2 billion, earnings Rs 400 million) adequately. Going forward, one can expect Cadbury to report a turnover of over Rs 6 billion in 2000 and earnings in the range of Rs 465 million.

    It is quite possible that the stock price performance in the short term may not set the market on fire, but it gives the retail investors a great chance to buy into a company which has great brands, an enviable distribution net work, a strong balance sheet and above all a first class management.

     

     

    Equitymaster requests your view! Post a comment on "Volume growth for value (creating) strategy". Click here!

      
     

    More Views on News

    GSK Consumer: On the Recovery Path (Quarterly Results Update - Detailed)

    Jun 20, 2017

    While GSK consumer reported muted revenue growth, volumes are seen to be recovering.

    Apex frozen food Ltd. (IPO)

    Aug 21, 2017

    Should you subscribe to the IPO of Apex Frozen Foods Ltd?

    A Little Gem in the FMCG Sector (Sector Info)

    Jul 18, 2016

    Will investing in Bajaj Corp yield high returns on account of a rural revival in sight?

    Parag Milk Foods Limited (IPO)

    May 4, 2016

    Should you subscribe to Parag Milk Foods' initial public offering?

    More Views on News

    Most Popular

    A 'Backdoor' to Multibaggers: It's Like Investing in Asian Paints Ten Years Ago(The 5 Minute Wrapup)

    Aug 10, 2017

    Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.

    The Most Important Innovation in Finance Since Gold Coins(Vivek Kaul's Diary)

    Aug 10, 2017

    Bill connects the dots...between money and growth, real money and real resources, gold and cryptocurrencies...and between gold, cryptocurrencies, and time.

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    Bitcoin Continues Stellar Rise(Chart Of The Day)

    Aug 10, 2017

    Bitcoin hits an all-time high, is there more upside left?

    5 Steps To Become Financially Independent(Outside View)

    Aug 16, 2017

    Ensure your financial Independence, and pledge to start the journey towards financial freedom today!

    More
    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407
     

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms

    TRACK CADBURY (I)

    • Track your investment in CADBURY (I) with Equitymaster's Portfolio Tracker. Set live price alerts, get research alerts and more. Get access now...
    • Add To MyStocks

    MARKET STATS