Reckitt rebounds from post-pandemic slowdown, gaining 67pc profit growth

Reckitt Benckiser (Bangladesh) PLC posted 67 per cent year-on-year growth in profit to Tk 152 million for January-March, thanks to a significant reduction in net operating expenses.

The UK-based multinational company's sales revenue grew 7.22 per cent year-on-year to Tk 1.37 billion in the three months. But at the same time production cost rose 12 per cent compared to the same period a year ago.

Company secretary Md Nazmul Arefin said the company had cut down marketing expenses significantly to keep the operating costs low, which in turn helped profit growth.

The company earlier spent a lot of money to create mass awareness about the strength of its products but recently slashed the spending.

Reckitt's net operating costs shrunk 17 per cent while marketing expenses dropped more than 36 per cent to Tk 149 million in the January-March quarter, compared to the same quarter of the previous year.

"This cost-cutting measure helped expand the company's operating margins, despite the modest growth in revenue and gross profit," said Salim Afzal Shawon, head of research at BRAC EPL Stock Brokerage.

The company's net operating cash flow per share, however, fell to Tk 75.14 in the quarter from Tk 95.43 a year earlier due to an increase in payment to suppliers and tax, the company said in a disclosure.

The net asset value per share jumped to Tk 208.98 from Tk 176.80 during the period as the latest quarterly profit added to the retained earnings.

One of the most familiar and trusted global consumer brands in the health and hygiene category, Reckitt Benckiser had seen its business growth accelerate after the Covid outbreak when the use of hygiene products shot up. Its top-selling products are hygiene-related, such as Dettol and Harpic.

As the pandemic waned and the Russia-Ukraine war began leading to a global economic slowdown, consumers' purchasing behavior changed.

The demand for hygiene products diminished due to inflationary pressure squeezing people's capacity to buy even essential items.

At the same time, raw materials became costlier in the global market, and the taka became cheaper against the dollar increasing import bills.

Bangladesh witnessed a decade high inflation at 9.52 per cent in August last year. In March this year, overall inflation went down to 9.33 per cent, still much higher than the expected level.

Many people shifted from branded products to non-branded ones to cope with high living costs.

As a result, Reckitt's annual profit plummeted 18.4 per cent to Tk 659 million in 2022. It paid 980 per cent cash dividend to shareholders for 2022, lowest since 2018.

Stock performance

The company disbursed highest cash dividends among the listed companies for three years in a row since 2019, luring investors to its stock.

In 2021, it paid the highest-ever 1650 per cent cash dividend in its history.

Investors knew that Reckitt's profitability was higher during the pandemic because its top-selling products are hygiene-related.

That resulted in the share price going through the roof to Tk 6,223 in December 2021. Since then the stock started to decline as the demand for hygiene products ebbed in the post-pandemic period.

Although Reckitt has been languishing at the floor price of Tk 4,760.70 on the Dhaka Stock Exchange since October last year, it is the most-valued stock in the market.

Its price-to-earnings (PE) ratio is 36.98 now based on the latest un-audited financial statement.

Listed in 1987, Reckitt Benckiser is engaged in manufacturing and marketing household products and toiletries, pharmaceuticals and food products.

Its brands include Dettol, Finish, Lysol, Veet, Strepsils, Woolite, Vanish, Trix and Harpic. In Bangladesh, the most popular products of Reckitt Benckiser are Dettol soap, Dettol liquid and Harpic.

In 2019, Reckitt Benckiser widened its market share in the bar soap category and is holding the top position in the toilet cleaner category.

Although the company's paid-up capital is very low at Tk 47.25 million, far below the minimum regulatory requirement of Tk 300 million, the company is yet to decide to expand its paid-up capital.

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