The Great Awakening
What happens when a company with a compounded annual grow-th of 15 per cent in the last five years suddenly posts a 36.2 per cent growth in three months? Its stock moves up by 40 per cent within the next two months. The company being discussed here is Reckitt & Colman of India (RCI), which has shown a turnover of Rs 80 crore in the first quarter of 1997 over the corresponding period in 1996. Its stock price has broken the Rs 280-mark since April 1, this year.
RCI needs little introduction. This FMCG has an array of impressive brands of which many have become generic. They also enjoy strong market shares: Dettol soap with 6.5 per cent, Harpic with 77 per cent, Dettol solution with 86 per cent, Cherry Liquid with 67 per cent and Robin Blue with 44 per cent.
However, RCI, which began by introducing specialised products in relatively unexplored market segments, has performed poorly when compared to other FMCG multinationals. Worse, its margins have been falling gradually. Operating profit margins (excluding all non-operational income), which averaged 19 per cent between 1986-90, fell to levels of 12 per cent in 1995 and 1996. And operating profit has grown at a compounded rate of a mere 7.2 per cent annually since 1992. Similarly net profit grew at a only 11.73 per cent.
But the company seems to have at last caught up with good times and its results have been obvious in the last few months. Part of that rebound can be explained by looking at its parent.
For years, RCI's parent company was struggling to deliver consistent profits to enhance shareholder wealth. It was also running the risk of its share prices slipping and thereby making it an attractive takeover target. But in 1996 and for the first time in several years the parent company achieved double-digit earnings growth. The chairman's statement in the parent company's annual report for 1996 also spoke of the importance of shareholder returns as a true measure of success.
Ironically, the share prices of Reckitt & Colman Plc recently rallied on the London stock exchange, the company being viewed as a main takeover target for the