Q1 Lends Allure To Cadbury Stock

The Cadbury scrip posted modest gains at the bourses last week even as overall sentiment remained steady.

Players attributed buying interest at the counter to the excellent results announced by the company. Cadbury posted a first quarter net profit of Rs 10 crore, a jump of 61 per cent over the corresponding period of the previous fiscal.

On the Bombay Stock Exchange (BSE), the scrip closed at Rs 420.75, a gain of Rs 25.25 over the previous week's close. On the National Stock Exchange (NSE), the scrip closed at Rs 417.25, a gain of Rs 21.75 over the previous week's close.

 

Cadbury India Ltd has been present in India since 1948. The company commands a 70 per cent volume share of the 22,000 tonne chocolate confectionery market.

Nirav Sheth, analyst at Smifs Securities, said: "Rapid new product launches is a clear indicator that the company is aggressively defending its market share. We expect chocolate sales to rise to 17 per cent year-on-year through to calendar year 1998 on the back of new product launches and product variants at lower price points.

"The strategy will be to improve rural consumption through better reach."

He adds: "We expect a 39.3 per cent year-on-year growth in earnings through calendar year 2000 on the back of lower interest and flattening depreciation expense."

At present, Cadbury India's product portfolio is skewed towards chocolate confectionery which accounts for over 70 per cent of the sales.

Cadbury India's only brand in the malted beverage segment, Bournvita, accounts for as much as 22.6 per cent of its total sales.

According to analysts, the company's foray in the sugar confectionery brand has been immensely successful with the launch of `Googly' which is a Rs 20 crore brand today. Within the chocolate segment, products like Perk and Kit Kat appear to be growing at a faster rate than the traditional moulded segment. Analysts feel it could be probably due to its positioning as a snack food as against indulgence platform for moulded chocolates.

On the flip side, the rupee devaluation is a cause of concern for the company's fortunes. "Imports account for about 24 per cent of raw material cost. Cocoa and packing material account for more than 85 per cent of imported raw materials. "Our estimates indicate that every 10 per cent depreciation in rupee would negatively affect the earnings by 6.2 per cent if the increased cost is absorbed by the company. However, this increase in cost can be offset by a meagre increase in selling price," says Nirav Sheth.