P&G: Healthcare woes

Though net sales rose 12 per cent y-o-y in June quarter, the company's operating profit was down 16 per cent.

Owing to a weak financial performance in its June 2006 quarter results, the P&G Hygiene and Health Care stock declined 1.5 per cent on Monday to Rs 754. Though net sales increased nearly 12 per cent y-o-y in the June 2007 quarter, its operating profit was down 16 per cent.

The growth in revenues was due to a 25 per cent increase in feminine hygiene products revenues as Whisper sales were strong.

The growth in healthcare products in the June quarter was flat, which is a weak season for Vicks.

Raw material costs increased by 635 basis points as a percentage of sales, which resulted in P&G Hygiene's operating profit margin declining 680 basis points y-o-y to 15.7 per cent. Staff costs also increased by 100 basis points y-o-y, which impacted margins. Advertising expenses were flat on a y-o-y basis.

P&G had sold the low margin detergent contract manufacturing business in October 2005, so the full year results are not strictly comparable.

However, for the year ended June 2007, its operating margins were up 300 basis points to an impressive 25.9 per cent. The feminine hygiene business has grown at 24 per cent y-o-y and should continue to grow at 20 per cent this year, say analysts.

The healthcare business grew just 5 per cent in FY07. The P&G Hygiene stock has been an underperformer over the past two years and trades at an expensive 27 times FY07 earnings.

Sona Koyo: High pitch

Sona Koyo Steering System reported an improved performance in the June 2007 quarter thanks to better demand from its existing clients like Maruti and Mahindra & Mahindra.

In addition, a tight check on the key raw material costs helped improve the company's operating profit margins in Q1 FY08.

As a result, the company's operating profit grew 39.1 per cent y-o-y to Rs 16 crore in the last quarter, while its adjusted net sales improved 32 per cent to Rs 152.6 crore.

Its operating profit margin also expanded 60 basis points y-o-y to 10.5 per cent in Q1 FY08. Raw material costs as a percentage of adjusted net sales declined 35 basis points y-o-y to 72.4 per cent, and helped in higher profits helped in the margin improvement.

In Q1 FY08, Sona Koyo's gross domestic sales expanded 33.6 per cent y-o-y to Rs 172 crore and the company is understood to be one of the largest suppliers of steering components to Maruti for models like Alto and Wagon-R.

Sona Koyo derives nearly 60 per cent of its total revenues from Maruti, say analysts. However, its exports grew only 8.2 per cent y-o-y in the last quarter. Sona Koyo has outlined a capex of Rs 330 crore over the next three years. At Rs 45, the stock trades at 13 times estimated FY08 earnings.

Sesa Goa: Export duty pinches

Sesa Goa's performance in the June 2007 quarter was adversely affected by the imposition of export duty on iron ore and the 7 per cent sequential rise in the rupee.

As a result, the company's operating profit declined 10.1 per cent y-o-y to Rs 175.3 crore in the last quarter, while its net sales expanded 5.4 per cent to Rs 454.1 crore.

Its operating profit margin also declined 675 basis points y-o-y to 38.6 per cent in Q1 FY08.

In its key iron ore division which contributed nearly 86.8 per cent of net sales in the last quarter, the company's volumes in Q1 FY08 declined nearly 6 per cent y-o-y to 2.2 million tonne.

In addition, Sesa Goa had to also grapple with the last Budget imposing an export duty on iron ore to the tune of Rs 300 per tonne. However, this export duty was reduced to Rs 50 per tonne for iron ore having ferrous content of less than 62 per cent with effect from May 2007.

Nevertheless, the company paid export duty of Rs 51.4 crore in Q1 FY08 and it resulted in the segment profit of the iron ore division declining 13.1 per cent y-o-y to Rs 165.7 crore.

The Vedanta management had earlier announced an open offer at Rs 2,036.3 after taking over the management of the company from the Japanese parent. On Monday, the stock closed at Rs 1811.5, discounting estimated FY08 earnings by 14.5 times.