• OUTLOOK ARENA
  • VIEWS ON NEWS
  • JULY 30, 2002

Nirma: Deferred tax jinx…

One of India's foremost FMCG companies, Nirma Limited, has reported staid numbers in 1QFY03. A 4% growth in topline and over 5% growth in bottomline during the quarter refelcts the slowdown FMCG sector is facing. A huge dip in other income resulting in the staid bottomline growth despite improvement in operating margins.

(Rs m)1QFY021QFY03Change
Net Sales Turnover5,3355,5283.6%
Other Income7128-60.8%
Expenditure4,1674,2522.0%
Operating Profit (EBDIT)1,1681,2769.3%
Operating Profit Margin (%)21.9%23.1% 
Interest 306190-38.2%
Depreciation299291-2.6%
Profit before Tax63382330.1%
Prior period items2-6 
Tax20336378.7%
Profit after Tax/(Loss)4324555.3%
Net profit margin (%)8.1%8.2% 
No. of Shares (eoy) (m)79.479.4 
Earnings per share*21.822.9 
*(annualised)   
Current P/e ratio 10.9 

Nirma continued the trend seen overall in FMCG companies, that of improving operating efficiencies. The company's operating margins improved over 100 basis points to 23.1%. This seems a result of strict control on costs. A lower interest burden signals Nirma's efforts in repaying its debts.

An over 60% dip in other income (likely a result of softer interest rates) and a huge surge in taxes (due to deferred taxes) was largely responsible for the sluggish growth in net profits. If we notice, profit before tax has grown at over 30% YoY during 1QFY03.

Cost break-up
(Rs m)1QFY021QFY03Change
Material cost3,3583,4011.3%
Staff cost961004.2%
Other exp.7147515.3%
Total expenses4,1674,2522.0%

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 Rs 250 the stock trades at 11x annualised 1QFY03 earnings and just 0.9x market cap to sales. Nirma tradationally is accorded lower valuations as compared to peers. With the economic downturn, growth has slowed down for Nirma, which operates on a value for money strategy.

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