Buyback buoys up

Sterlite Optical Technologies: demand-driven growth

THE interest in the so- called ‘new economy stocks’ is on the wane. This has affected the Sterlite Optical Technologies’ (SOTL) stock so badly that even a couple of positive developments in the company has failed to enthuse market sentiment in the scrip.

First, it was the announcement of impressive results for the quarter to June 2001. Now, it is the share buyback programme at a maximum price not exceeding Rs 250 per share, which is around 25 per cent higher than the current market price. The specifics of the programme, including the mode of buyback - are yet to be known.

This news is important as it has come after the cancellation of ADR issue of around $100 million to $150 million, which could have diluted the company’s EPS by 20 per cent. If the buyback proposal goes through successfully, it may also reduce equity capital and consequently increase EPS.

If the latest quarterly results are annualised, SOTL may end up with a net profit of Rs 25 crore, plus, more than triple digit growth.
Income from operations, too, has surged to Rs 172.7 crore (Rs 48.7 crore). This indicates that the company has escaped adverse effect of the global tech slowdown. Reportedly, SOTL plans to set up a Rs 1,000-crore optic fibre cable (OFC) manufacturing facility at Bangalore. Demand for OFC is expected to grow at a CAGR of 29 per cent till next year or so according to KMI Corporation, a reputed market research agency.

So, the proposed buyback, in all probability, may augur well for the company, irrespective of the share price movement in the short-term.

Gillette India
Gillette India, India’s largest shaving products manufacturer, has belied market expectations by posting a measly 1 per cent growth in net sales revenue to Rs 103 crore.

The company derives around 50 per cent of its revenue from personal grooming products, around 30 per cent from batteries and torches, while the rest comes from household and oral care products.

Sluggishness in the Indian economy has restricted topline growth of most of the companies in the FMCG sector and Gillette is no exception to it. However, low growth has surprised analysts, since Gillette derives a majority of its revenue from the premium segment of the personal grooming market, which is not significantly influenced by the slowdown.

Gillette has, nevertheless, boosted its operating profit and slashed net loss by pruning operating costs by almost 5 per cent to Rs 95 crore. The cost of goods sold has seen a fall of almost 3.6 per cent to Rs 52 crore, despite a steep depreciation in the value of the rupee. Imports account for around 25 per cent of the total cost of goods sold.

This cost saving has propelled operating profit by 113 per cent to Rs 10.5 crore. However, the rise is over a lower base of last year. Then the operating margin was only 5 per cent of the turnover, much lower than the average 13-15 per cent for the FMCG industry.

Higher depreciation has resulted in a net loss of Rs 1 crore. Yet, net loss has contracted by 75 per cent from Rs 3.8 crore in the corresponding quarter of last year.

The yearly EPS of Gillette on last four trailing quarter basis is Rs 6.5. The stock closed at Rs 318.50 on August 7, 2001, and has a P/E of 48, substantially higher than its FMCG rivals. The stock, therefore, does not seem to be attractive at current levels. However, a buy-back announcement from the promoters who hold 86 per cent in the equity, may cheer up the price.

-- Manish Joshi & Prashant Kothari