Return
to Story Page
To print: Select File and then Print from your
browser's menu
Percy Dubash
October 26: At first glance, the third quarter results of Reckitt & Colman appear to be a mixed bag. More so since the 12.32 per cent improvement in net appears pedestrian. But this is in stark contrast to the 14.37 per cent fall in earnings which R&C suffered in the first half. This was largely due to the effects of its restructuring exercise which had seen the transfer of 3 important brands -- Dettol, Disprin and Saridon -- to a JV with Nicholas Piramal accounting for almost 35 per cent of the company's turnover.
How then has the company managed to post this improved performance in the third quarter? Reckitt's strategy of rejuvenating its old brands and introducing new products appears to have paid dividends. Also analysts state that volume growth, a consequence of aggressive marketing in the insect control and domestic floor cleaner segments, have helped send the revenue curve northward after a period of flat sales. Thus, turnover at Rs 108.20 crore, was up 10.23 per cent. But perhaps most important forthe company has been the rejuvenation of its operating margins (OP). In fact OP which were long depressed due to a high ad-spend and marketing costs, improved from 6.98 per cent to 8.11 per cent, led by volume growth achieved in products such as Lizol and Mortein. Also, a host of generic brands like Cherry Blossom, Robin and Harpic also did help. Analysts also point out that the reduction in excise duties from 40 to 30 per cent in cosmetics and toiletries also helped. Although Reckitt did not benefit directly as all benefits were passed on to the consumers, it profited from the increase in volumes. The company's minimal exposure to debt, has helped relieve the interest burden and interest charges stood at a mere Rs 0.58 crore. Thus with the company maintaining an effective tax rate of 34.5 per cent, net profits have jumped from Rs 4.14 crore to Rs 4.65 crore.
The company's changing business outlook has been driving the stock northward even in the nervous market conditions. As far as the second half of1997-98 goes, the commissioning of additional capacities for mosquito coils, PCMX & Trilcoson and tablets should give a boost to sales growth. Thus even if the company were to maintain the trend of the first half, it should end the year with an earnings per share of around Rs 10. On these earnings, the current P/E ratio stands around 30 which by its MNC status appears fair.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
------------------------------------------------------------
This story was printed from Net Express located at http://www.expressindia.com. Net Express provides a portal to India, with news from The Indian Express and The Financial Express along with sites on travel and tourism, the entertainment industry, the power sector, the environment and much more.
------------------------------------------------------------