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SmithKline Consumer: ‘Boost’ed by Horlicks

Smithkline Beecham Consumer Healthcare (SCH), has escaped the impact of general sluggishness in the FMCG sector, as it clocked a growth of 18 per cent in its turnover (net of excise) to Rs 212 crore during the quarter to June 2001.

Malted foods contribute 95 per cent of the total turnover of the company with brands such as Horlicks, Boost, Maltova and Viva. North India is a major market, even as acquisition of Maltova and Viva from Jagatjit Industries is expected to expand the company’s market-share in the southern markets. The acquired products will enable the company to target the lower end of the malted foods segment owing to their lower prices and thus drive volumes.

All these factors favour SmithKline, which has a strong hold in the malted foods market with around 70 per cent share. The company also can cash in on the relative unimportance with which its main competitors Nestle and Cadbury treat their respective products Milo and Bournvita. These brands do not account for a major share of their turnover.

The company has kept a tight control on its operating cost that was up only 11 per cent to Rs 163 crore as against a 18 per cent rise in the turnover.

This cost control has given a shot in the arm to the operating profit which vaulted 50 per cent to Rs 57 crore. So is the case with the net profit which was up 45 per cent to Rs 40 crore.

SmithKline has been growing at a good pace in the past four quarters and has certainly reported one of the best growth rates in the FMCG sector. The acquisition of Maltova and Viva brand would further push the topline. However, since it has a very large market-share, future growth in topline would come more from an expansion of the market than an increase in market- share.

Wimco
Finally, there is some hope for the shareholders of the loss-making Wimco, the beleaguered matchsticks manufacturer.

The company’s new management, Swedish Match has expressed the resolve to turn around the company through improved productivity, product quality and cost effectiveness. Already the commitment of the new master is visible from a slew of measures taken up by it. Swedish Match has infused into the company fresh funds worth Rs 52 crore through 52 lakh 0.05 per cent redeemable cumulative preference shares of Rs 100 each.

The company utilised the proceeds for repaying high cost debt and streamlining its working capital funds. In order to reflect realistic values of the assets and liabilities of the business, investments held in subsidiaries and other companies has been written down substantially.

As a result, the year to March 2001 showed Rs 45.36 crore loss, Rs 36.44 crore resulted from restructuring operations.

The performance for the first five months of the current financial year has shown an improvement over the last year. The company reported sales of Rs 43.61 crore and a profit before tax of Rs 0.72 crore during the quarter to June 2001.

The management claims that the performance in the two months of the second quarter has also been more or less along the same lines.
It is extremely difficult to give the market size of the industry. Still, as per our assessment, it is a market close to 1.3 trillion matchsticks.

In this market, Wimco holds close to 10 per cent, while the small scale and cottage industries own around 80 per cent. As a result, there is immense potential for Wimco to penetrate in the unorganised sector. The company already has got backward integration in the form of forestry operations through subsidiaries.

It is safe to conclude that after infusion of new funds and cleaning up its balance sheet of old mess, Wimco is all set to meet future challenges with renewed vigour.

— Prashant Kothari & Manish Joshi