• APRIL 24, 2002

Reckitt: Poor 1Q strengthens open offer

Household cleaning products major, Reckitt Benckiser India Limited (Reckitt), recorded a 22% decline in its 1QFY03 topline. It ended the quarter with Rs 22 m loss. The decline in the topline could be attributed to the discontinuation of its marketing joint venture, Reckitt Piramal, in July 2001.

(Rs m)1QFY021QFY03ChangeFY02
Net Sales1,4771,156-21.8%5,884
Other Income827234.6%80
Operating Profit (EBDIT)133-14-466
Operating Profit Margin (%)9.0%-1.2% 7.9%
Interest 01166.7%0
Profit before Tax109-15-387
Extraordinary expenses (VRS)-10-13--39
Profit after Tax/(Loss)67-22-214
Net profit margin (%)4.6%-1.9% 3.6%
No. of Shares (eoy) (m)32.932.9 32.9
Diluted Earnings per share*8.2-2.6 6.5
Current P/e ratio   37.3

Though the company has managed to cut material costs by nearly 40% YoY, a higher advertising budget has taken the wind out of operating margins. The company finished the quarter with a negative operating profit as ad budgets to sales ratio zoomed from 10% in 1QFY02 to 24% in 1QFY03. A similar trend was witnessed in FY02 results as well where ad expenses shot up by 50% YoY.

The past year has not been good for the company as it lost the ambitious, Mr. Pranab Barua as MD. Also, due to the company's Reckitt Piramal JV call off, Reckitt could not concentrate on the brands under this JV mainly Dettol and Disprin and also on its growth strategy for the household cleaning segment.

Ratio to sales
Raw material55.9%42.8%
Total expenditure91.0%101.2%

The stock is range bound at Rs 242, largely due to the fact the Reckitt's parent has given an open offer at Rs 250 per share to the remaining 49% equity holders in an effort to take the company private. If the company does get a successful response like the Cadbury open offer did, then Reckitt is most likely to vanish from the Indian bourses soon. Given the company's recent staid performance, investors are likely to accept the open offer and exit the stock. Even if some investors don't, they run the risk of being marginalised as liquidity in the stock is likely to dry up and the second buyback offer from the parent may not be as attractive.

Having said that, the Reckitt management sees India as a big market in the coming years and thus has decided to take the company private when the valuations are seemingly low. With more MNC companies following the same pattern, the Indian investors will slowly see a dearth of quality companies to invest in. Stock picking is likely to become even more important going forward. Also, in the FMCG spectrum, investors might take a second look at domestic companies for growth.

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 (Research Analyst) bearing Registration No. INH000000537 (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, Canada or the European Union countries, 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 (Research Analyst)
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