New Delhi, Jan 28: Bonus rumours coupled with expectations of excellent performance has propelled Smithkline Consumer on the bourses to a new high. In less than a month, the scrip has zoomed from Rs 520 to a high of Rs 654 to close the day at Rs 640 on Thursday. If the bonus materialises, it will be the third in less than four years and fourth in six years. The last two bonuses were in 1997 in the ratio of 3:5 and in 1995 in the ratio of 1:1.This time around, the bonus is not expected to be a liberal one. Analysts expect a 2:5 or 3:5 bonus from this consumer goods multinational. As a result of frequent bonuses, the dividend has come down substantially over the years from 110 per cent in 1994 to 60 per cent in 1996 and further to 42 per cent in 1997.The company is a zero-debt company and the networth at Rs 172 crore on an equity base of Rs 45.38 crore yields a book value of around Rs 38. The company has free reserves worth Rs 126.73 crore.
After a spate of excellent results from the software sector, it'snow the turn of the pharmaceutical and fast moving consumer goods (FMCG) sector. Expectations of good financial results has already pushed up sentiment in these stocks.
Smithkline Beecham Consumer, a subsidiary of Smithkline Beecham Plc., UK, is expected to announce encouraging results for the year-ended December 1998. The company is expected to announce a fourth quarter net profit of around Rs 28-32 crore and a full year net of Rs 86-92 crore against Rs 62 crore reported in 1997. The growth is expected to be volume-driven and the volume growth will be achieved through a mix of new product launches and capacity expansions. Smithkline is the largest player in the domestic malted food industry with its flagship product, Horlicks. However, there have always been apprehensions about the company's over dependence on a single product, `Horlicks'. The company also markets products like Eno, Crocin, Tums and Aquafresh.
The equity split through capitalisation of reserves does not hurt the multinational companiesfor two reasons. One, the earnings are growing at a rapid rate which are expected to match the equity expansion. Also, the equity expansion will result in enhanced cash outflows for the parent in the form of dividend. This is the reason that MNCs have been more liberal with bonus issues.
Copyright © 1999 Indian Express Newspapers (Bombay) Ltd.
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