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Henkel: Introducing brands but… - Views on News from Equitymaster
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  • Dec 28, 2000

    Henkel: Introducing brands but…

    The bashing TMT counters are receiving on the stock exchanges has led the focus back to the brick and mortar stocks. In line with this, the FMCG companies too, have witnessed some positive movement. In light of this, we take a look at one of the emerging companies in the FMCG sector – Henkel Spic India Limited.

    Henkel Spic is a 54% subsidiary of German consumer products major Henkel KgaA engaged in the manufacture of eco-friendly zeolite-based phosphate free detergents, both surface cleaners and laundry based products. The company also has a presence in oral care and cosmetics. Tamilnadu Petroproducts is the other promoter. The company owns brands like Brisk, Henko, Limeshot, Pril, Mr. White, Margo, Neem toothpaste, Fa and Aramusk.

    (Rs m) 3QFY00 4QFY00 1QFY01 2QFY01 3QFY01
    Net Sales 655 701 750 830 717
    Other Income 1 5 5 1 1
    Expenditure 622 671 682 800 689
    Operating Profit (EBDIT) 33 30 68 30 28
    Operating Profit Margin (%) 5.0% 4.3% 9.1% 3.6% 3.9%
    Interest 28 26 11 6 8
    Depreciation 13 12 13 14 13
    Profit before Tax -8 -4 8 12 7
    Tax 0 0 0 0 0
    Profit after Tax/(Loss) -8 -4 8 12 7
    Net profit margin (%) -1.2% -0.5% 1.1% 1.4% 1.0%

    The company has turned around from the first quarter of 2001. The company has consistently posted profits since then. However, the turnover growth for the company (atleast in value terms) has stagnated. Its profits too have shown no improvement quarter on quarter. Looking at its operating profit margins, it looks like the company has been forced to remain competitive on pricing to gain volumes. The company’s high expenditure seems also a function of higher advertising and distribution expenses.

    (Rs m) 9mFY00 9mFY01 Change FY01E
    Net Sales 1,752 2,298 31.2% 2,998
    Other Income 8 7 -9.0% 8
    Expenditure 1,668 2,212 32.7% 2,902
    Operating Profit (EBDIT) 85 86 1.7% 96
    Operating Profit Margin (%) 4.8% 3.7%   3.2%
    Interest 73 26 -64.7% 34
    Depreciation 40 40 1.5% 53
    Profit before Tax -20 27 - 33
    Tax 0 0 - 0
    Profit after Tax/(Loss) -20 27 - 33
    Net profit margin (%) -1.1% 1.2%   1.1%
    No. of Shares (eoy) 73.8 116.4   116.4
    Earnings per share* -0.4 0.3   0.3
    Current P/e ratio       162.3

    Going by the first three quarters it does look that the company will finish the year ended December 2001 in the positive. However, its operating margins are likely to shrink further. Given the slowdown in consumption and the consequent consumer downgrading Henkel’s future in the short term doesn’t look encouraging. However, the company has immense growth potential given the efforts it’s taking to introduce new products and brands. At the current price of Rs 46, the stock trades at a P/e multiple of 162 times its FY01 projected earnings.



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