Matching past revenues and profitability margins will be a tad tough for the company during the current financial year.
The fast moving company in the fast moving consumer goods (FMCG) segment might just take a breather, as its profit margins touched a high of 14.5 per cent (without the Kaya business) and stabilised at these levels. Its high profile Kaya Skin Clinics are seeing steady deterioration in the market place and have been eating into the company’s profits, reckon analysts.
Moreover, its new product launches have not been as successful as expected, according to analysts at Nomura Securities, and the company still relies on traditional products like Parachute and Saffola, which account for more than 50 per cent of revenues.
The efforts to add value to these brands have been only moderately successful. So, the company may keep looking at new launches to boost growth. It has launched Saffola Oats and positioned it as a healthy breakfast alternative. Analysts reckon this is strong move into the Rs 120-crore segment, which has grown over 40 per cent in the past few years.
However, while the domestic market looks tight, its international operations have been strong. Revenues from overseas have been growing at a compounded rate of around 20 per cent over the past five years, with FY10 recording a 36 per cent growth. These now account for 23 per cent of the company’s overall revenues. Its presence in Egypt and Bangladesh is substantial and is expected to grow in the years ahead.
While revenues keep a steady trend, rising input costs could take a toll. Prices of copra or dry coconut, which accounts for around 40 per cent of the material costs, has seen a jump of around 11 per cent over the average price in FY10. Since passing on cost rises will be difficult, the jump in operating profit margins from 12.7 per cent in FY09 to the current 14 per cent will be difficult to sustain.. Already, the company has seen better profits on the back of increased volumes, but not value. Improved client retention in its Kaya clinics and steady margins will see the company match its previous performance. Otherwise, it could be time for a breather.