Lakme Runs Out Of Colour

The dip in volumes is mainly on account of transfer of its sales and marketing infrastructure to Lakme Lever - a 50:50 joint venture with Hindustan Lever. During last year, purchases from outside at Rs 20.49 crore accounted for 24.6 per cent of the total sales.

Considering the stronghold of HLL in this segment, this move will benefit Lakme in the long run. Also, to have a better focus in its core business, the company transferred its pharmaceutical business to Tata Pharma with effect from April 1995. However, its effect is minimal as sales of pharmaceuticals constituted hardly 3 per cent of the total volume in 1995-96.

 

Last year's bottomline included one time extraordinary income of Rs 123.51 crore. This includes Rs 62.39 crore from Lakme Lever towards transfer of marketing infrastructure and goodwill. Lakme also received Rs 78 crore from Lakme Brands - an 100 per cent subsidiary for transfer of its brands and technologies. Compared to this, it received Rs 2.17 crore for the transfer of Miaami Pharma and Chemicals Division to Bal Pharma in 1996-97.

In terms of operating profit margin, Lakme's 28.9 per cent in 1996-97 fared much better against the last year's margin of 8.89 per cent.

The restructuring measures infused liquidity. Consequently, the company's interest burden dropped by 65 per cent. Also, the one time income led to hike in tax burden in the last year. This year, it came down by 63.5 per cent.

EPS for the current year on enhanced capital of Rs 13.42 crore arising out of the 1:1 bonus issue works out to be Rs 10.8. The government's latest move to charge excise based on maximum retail price will hurt the company.

More so because Lakme operates in the premium segments where the retail pric

is much more than the ex-factory price. Also, having shed its interests in the other areas that constituted 45 per cent

of its volume in 1994-95, it is now entirely into cosmetics business.