Bitter chocolate

Cadbury: Increase in cocoa prices may affect margins

The slowdown in the FMCG industry has influenced the performance of Cadbury whose sales growth rate, for the quarter to June, 2001, has seen a downtrend as compared to the corresponding quarter in the previous year.

The company reported a growth of 10.5 per cent in its sales income to Rs 118 crore during this quarter. However, this growth is lower than the growth of 13 per cent and 24 per cent reported for the quarters ended June, 2000 and June, 1999 respectively.

With the removal of quantitative restrictions on imports, the sales revenues may be significantly influenced due to the entry of global majors in the market.

Also, the talks that India offers a huge scope for FMCG companies due to its 1 billion population, does not hold true when one looks at the current industry scenario where growth rate has fallen down significantly.

Cadbury has seen a slightly higher increase of 11 per cent in its operating cost to Rs 101 crore.

However, a steep increase in the other income has pushed up the operating margin by 75 basis points. The operating profit stood at Rs 20 crore while the net profit (before extra-ordinary item) was up 23 per cent to Rs 9 crore.

Although the company has been able to exercise reasonable control over its raw material costs, it may see an increase in the same in the future.

The price of Cocoa, which constitutes 50 per cent of the total raw material cost, has been on the uptrend recently.

As per available data, the price of cocoa in the international markets has shot up by almost 8 per cent, in the quarter to June 2001, to $1.08/kg as compared to $1/kg in the quarter to March, 2001. This may affect the operating margin unless the price hike is passed on to the consumers.

Exide Industries
Exide Industries (EIL)’s performance during the quarter to June 2001 has taken a battering owing to dumping of cheaper batteries.

Dumping from Bangladesh and Thailand still takes place despite anti-dumping authority’s action against China, Japan and South Korea.
Moreover, the basic issue of an anomalous duty structure (due to which import duty on raw material and parts is higher than the duty on finished goods) remains unresolved.

The company is a play on the automobile industry since about 75 per cent of its turnover comes from supply to this sector.

It is therefore, imperative that the company follows the fortunes of the automobile industry, which currently is in shambles.

Topline grew by 11 per cent to Rs 176 crore. Although sales of automotive batteries recorded a drop, a sharp growth in industrial batteries more than compensated for that decline. Total expenditure flared up by 16.3 per cent to Rs 146.3 crore, eroding operating profit by 9 per cent to Rs 30 crore. As a result, the operating profit margin dipped by 370 basis points to 17 per cent.

With interest and depreciation outgo remaining almost unchanged, profit before extraordinary items plunged by 36 per cent to Rs six crore.

The company was reported to have targetted a 10 per cent cost reduction to fight dumping. It has been trying hard to cope up with the automobile industry downturn by changing the product portfolio that comprised two brands namely — Exide and Standard Furukawa.
EIL recently tied up with automobile major Mahindra & Mahindra to become the Original Equipment Manufacturer ( OEM ) supplier of electric batteries for the latter’s Electric Vehicles (EVs).

EIL is optimistic about the next quarter. The adverse impact of low-cost imports is likely to be contained as a result of the interim order of the anti-dumping authority.

While the order has stopped further imports, imports in the pipeline could not be prevented in this quarter.

With new orders for submarine batteries and a sharp growth in industrial battery exports, the second quarter seems to hold some prospects.

-- Prashant Kothari & Manish Joshi