Kalina, Russia's major perfumery and cosmetics producer, published its 1Q 2008 IFRS consolidated financials on Friday. A press release from the company says that revenue grew by more than 29% in dollar terms to USD 124.9 mn. The robust sales are attributable to the successful implementation of a strategy aimed at ensuring sales growth, and concentration on high-yielding products via effective advertising. During the quarter, the company came up with over 100 new products under its own brands, having increased its average sales price by more than 12% y-o-y.
Table 1. Kalina: basic financials for 2007, mn USD
| Indicator | 1Q2007 | 1Q2008 | 1Q2008/1Q2007 |
|---|
| Revenue | 96.6 | 124.9 | 29.3% |
| Gross profit | 49.6 | 66.6 | 34.3% |
| Gross margin | 51.4% | 53.4% | |
| EBITDA | 15.4 | 16.6 | 8.0% |
| EBITDA margin | 15.9% | 13.3% | |
| Net profit | 7.6 | 8.8 | 15.6% |
| Net margin | 7.8% | 7.0% | |
Source: company data, Finam estimates
Growth of the company's advertising budget by more than 58.5% y-o-y and an increase in its effective tax rate have marginally eaten into its profit margins, which the company referred to as a seasonal phenomenon, adding that it was determined to meet its targets for revenue and EBITDA in FY 2008.
We are moderately positive on the company's 1Q 2008 financial performance. Despite a fractional decrease in the margins y-o-y, they widened as compared with 4Q 2007.
Table 2. Kalina: basic profit margins
| Indicator | 4Q2007 | 1Q2008 |
|---|
| Gross margin | 44.4% | 53.4% |
| EBITDA margin | 12.8% | 13.3% |
| Net margin | 3.3% | 7.0% |
Source: company data, Finam estimates
We believe that the larger proportion of high-yielding products in total company sales, as well as the rise in its average sales price, should help the company expand its margins in 2008.
We estimate the fair value of Kalina shares at USD 55.2 per share, which implies an upside potential of more than 60% on the current stock valuations.
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