• JUNE 10, 2002

Nirma: Deferred tax does it in

Nirma Limited, one of India's largest branded detergent companies, has done quite well on the operational level during FY02. Though the company saw a 6% fall in FY02 topline, its operating expenses fell at a faster clip. Consequently, operating margins improved by 140 basis points to 25.8%.

(Rs m)4QFY014QFY02ChangeFY01FY02Change
Net Sales Turnover4,9294,516-8.4%20,52119,302-5.9%
Other Income3935-9.8%12318449.5%
Operating Profit (EBDIT)1,1751,34614.5%5,0074,985-0.4%
Operating Profit Margin (%)23.8%29.8% 24.4%25.8% 
Interest 277195-29.8%1,0071,0575.0%
Profit before Tax53087565.0%2,7202,8916.3%
Prior period items1-1 8-7 
Profit after Tax/(Loss)481284-41.0%2,4971,847-26.0%
Net profit margin (%)9.8%6.3% 12.2%9.6% 
No. of Shares (eoy) (m)79.479.4 79.479.4 
Earnings per share*24.314.3 31.523.3 
Current P/e ratio 17.8  10.9 

It was more or less the same story in 4QFY02 numbers. The topline saw over 8.4% fall indicating difficult market conditions, but stricter control on costs helped the company put in a 600 basis point improvement in operating margins to nearly 30%.

Nirma's 4QFY02 performance was much better at the operational level. What's more, the company managed to cut its debt servicing costs (interest) and depreciation provisioning considerably. Consequently, in 4QFY02 profit before tax growth stood at 65% (as compared to a staid 6% in FY02). However, taxation blues hit Nirma's numbers as the deferred tax haunted profits. Tax burden increased significantly thereby resulting in a 26% dip in net profit during FY02. The dip in bottomline was more acute at 41% during 4QFY02.

Cost break-up
(Rs m)FY01FY02Change
Material cost12,24010,875-11.2%
Staff cost448377-15.9%
Other exp.2,8263,0668.5%
Total expenses15,51414,317-7.7%

Nirma's strict cost controls have come largely as a result of its backward integration drive. Over the last 5 years Nirma has made a capex of almost Rs 20 bn towards backward integration. In the foreseeable future, the only major capex will be incurred on debottlenecking and expansion of the Soda Ash plant from 420 THTPA to 650 THTPA by December 2002.

At the current price of Rs 254 the stock trades at 11x its FY02 earnings. Going forward the company's sharp improvement at operational level should enthuse investors.

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