Inflation will continue to take a bite out of profits.
Sales are expected to be good, but not the quarterly profits.
From the ConCall
“We had an impact on commodities all across, including steel and precious
metals. The impact was to the extent of about a little less than 2%. And while we were able to partially
offset this impact with the price increase that we did and there was also some incremental impact of the
sales promotion cost being higher sequentially compared with fourth quarter in this quarter. So, that
broadly is the reason for the drop in operating margins that you see sequentially between quarter 4 and
quarter 1. Moving forward, we are hopeful of commodity prices cooling. It is difficult to give any fixed
guidance at this point in time because these situations vary, but we have more clarity on quarter 2 because
quarter 2 rates are fixed to quarter 1.”
The interesting possibilities in this stock:
In 2016 its OPM was 16%, now 7%. Once this inflation issue is done and over with, the profitability has a lot of headroom.
Sales are at all time highest. This will hugely contribute to profits.
My estimate we could see EPS going to 300 in the next couple of years. This process should start, as soon as the RM prices start cooling off.
There are news of Steel plants shutting down in Europe, this should further delay the process.
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