Procter & GambleProcter & Gamble India's efforts to build strong brands over the last three decades appear to be paying rich dividends. The company's recently announced unaudited results for the six months ended December 1997 bear testimony to this fact.
Not only has the company achieved higher sales than the corresponding period in the previous year, it has also been able to improve its margins considerably. While its income from operations has registered a 15 per cent jump to Rs 237.16 crore, other income has fallen drastically by 70 per cent from Rs 2.37 crore in the previous period. Operating profit (profit before interest, depreciation and tax) rose by 47 per cent to Rs 43.75 crore and as a result, operating margins have improved from 14.48 per cent to 18.45 per cent. Interest outgo has fallen marginally from Rs 3.68 crore to Rs 3.56 crore resulting in an improvement of 43.71 per cent in gross profit (profit before depreciation and tax). The gross margin has increased to 17.25 per cent from13.84 per cent.
The improved margins have most probably resulted from better exploitation of the brand equity that the company has been able to establish for its products in the feminine protection and healthcare markets. That the company has been successful in building superior brands is also brought out by the fact that "Vicks' has been rated as the numero uno brand by the A&M-Marg survey. In the feminine protection market, the better performing and differentiated sanitary product, "Whisper Extra Dry', has been enhancing the market share of the "Whisper' brand.
The company's ad-spend in the last year was Rs 25 crore, an expenditure well deserved as Procter & Gamble has acquired a market leadership position in the feminine hygiene care market by displacing former leader Johnson & Johnson. The company has continued to upgrade and extend the Vicks franchise to products like Vicks Sinex (it has garnered a market share of around 17 per cent in value since its launch a year back), thus strengthening the Vicksbrand as a whole.
Besides the improved sales and enhanced margins, better tax-planning has also contributed to the 64 per cent rise in the company's net profit.
It has provided Rs 6.95 crore for taxation as compared to Rs 8.35 crore in the previous corresponding period. The company has posted a record net profit of Rs 23.40 crore in the first half and is most likely to continue its good performance, ending the current year on a better note than the previous one.
Earnings per share (not taking into account the bonus issue in February) have increased by 64 per cent, and this has resulted in the stock going up by over Rs 200 in the last few trading sessions in anticipation of good results.
Stocks such as P&G do well during industry slowdowns, but will attract lower PEs as a recovery picks up momentum.
BSES
The BSES counter at the BSE was the scene of a very profitable market game, with the stock shooting up to Rs 220 from around Rs 175 on rumours of a takeover, and then falling to Rs 202 onprofit-taking after closing at Rs 220.9 on Monday.
So far as the fundamentals are concerned, however, it makes little sense for anybody to try and acquire BSES at this astronomically high price. In 1997-98, for the third year running, BSES will post clear profit in excess of reasonable return. The management has been clear that if the company manages CP in excess of RR for the third year in running, it will have sufficient balance in "consumer rebate reserve' to give meaningful refund to its over 34 lakh customers. Hence, it is beneficial right now to be a BSES consumer than its shareholder.
The maximum distributable profits of an utility are restricted by Electricity Supply Act (ESA). Unless the intention is to gold plate the projects (in this case the proposed Palgarh project) and siphon off funds, the acquisition is meaningless. This is because CP of BSES will remain flat due to the requirements of ESA and even the proposed project will result in a sharp growth in earnings for a maximum of 4-5 years.The JV/subsidiaries route taken by BSES to promote coal washeries/IPPs will start contributing to the bottomline only after a couple of years on a very optimistic basis. Even this won't boost the bottomline as "other income' is included for calculating "clear profit (CP)' as well as "reasonable return".
DoT-VSNL
Though Trai (Telecom Regulatory Authority of India) at present has stalled the entry of private independent service providers (ISPs) for Internet services, it is inevitable that it would allow them in the near future. When this happens, it is imperative that the Department of Telecommunications ( DoT) and Videsh Sanchar Nigam Ltd ( VSNL) workout an Internet revenue sharing arrangement. This is because the ISPs will have to service their individual service areas through any one of DoT's or VSNL's access nodes ( earth stations). At present DoT has around twenty Internet access nodes whilst VSNL has six. It is therefore obvious that irrespective of an ISP's licence category, bulk of theconnectivity would have to be provided by DoT.
Those ISPs unable to link up with VSNL's Internet access node would have to shell out port charges to DoT for plugging into its access nodes. It is therefore necessary that DoT and VSNL should work out an arrangement to split these charges. But the moot point is that DoT for its ISP clientele will have to procure the requisite bandwidth from VSNL. A less complicated solution may be that DoT pays VSNL charges for shelling out the requisite bandwidth and retain the internet port charges to itself.Emcee (with contributions by Sarad Saraf, Urmik Chhaya and AG Krishnan)
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
