Financial Daily from THE HINDU group of publications
Tuesday, Oct 29, 2002
Food & Dairy Products
Columns - Microscope
Corporate - Performance
Britannia performs better than the numbers suggest
WITH net sales slumping by five per cent and net profits inching up by a mere 3.6 per cent, Britannia Industries' financials for the quarter ended September 2002 may appear lacklustre.
But the numbers are actually better than they appear. The net sales growth has been impacted by the transfer of the dairy business to a new joint venture in March 2002. As a result the contribution from this business, which was available in the September 2001 quarter has not been available in the latest quarter.
On its continuing businesses alone, Britannia Industries has managed a seven per cent growth in net sales. This is not a very impressive number; but is not much lower than the nine per cent sales growth managed by Britannia in 2001-02.
Similarly, net profit growth has been trimmed to 3.6 per cent mainly by exceptional items. Last year, Britannia made exceptional gains from the reversal of prior years' liabilities. As a result, while exceptional income contributed Rs 7.30 crore to Britannia's net profits in the September 2001 quarter, it has contributed a lower Rs 2.80 crore in the September 2002 quarter. If one weeds out exceptional items, the company's profits before taxes have grown by a reasonable 18 per cent and post tax profits by 17 per cent.
The reduction of equity base due to the buyback of shares has helped magnify the impact of profit growth on the per share earnings. Between the September 2001 and September 2002 quarters, Britannia's per share earnings have jumped by 31.8 per cent.
Britannia's operating profit margins for the September 2002 quarter appear to have benefited from savings on procurement costs (the cost of outsourced goods has dropped sharply as a proportion of sales).
Part of the gains in the operating profit margins are also likely to have come from a one-time boost from the divestiture of the loss-making dairy business to the new joint venture with Fonterra of New Zealand.
But while the move may have benefited Britannia in the short term, the transfer of the high potential dairy business has deprived Britannia of some of the long-term growth momentum on its topline.
The company is banking on a stream of high-end new product launches (such as Pure Magic) to push up its topline growth.
But with competitors such as Parle turning increasingly aggressive, the next few quarters may find Britannia on difficult turf.
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