Tuesday, August 3, 2010

Bloodbath in Biscuits?

At one end, FMCG companies like Nestle and Dabur are reporting highest ever net profit margin (NPM) of almost 13-14%, and at the other end, biscuits company like Britannia had the lowest net profit margins of the decade last year. The net profit margin last year was 3.4%. The company reported net profit of 116.5 Crore on sales of 3424.6 Crore. The consolidated numbers are worse than the standalone one. Even the operating profit margin (OPM) was just 5.07%, operating profit of 173.7 Crore on sales of 3424.6 Crore. I had recommended buying Britannia at 1350 in July 2008. After two years, the share price has appreciated to 2120 today. The company has paid Rs 40 and 25 as dividend last year and this year respectively. The company also issued debentures worth Rs 170 on 1:1 ratio to the stock. Thus the total gains for a shareholder is 2120+40+25+170=2355 on an investment of just Rs 1350 giving a return of 74.4% in two years, i.e. 30%+ compounded returns. Since the stock price is out of sync with the fundamentals, I would suggest investors to book profits at these levels. You can see in "Recent Investment Activity" section that I have been selling Britannia shares since last few days.

Speculative stock movements are carried too far in both directions, frequently in the general market and at all times in at least some of the individual issues.
Bookmark and Share

No comments:

Related Posts with Thumbnails