Indo Rama: Moving ahead - Views on News from Equitymaster

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Indo Rama: Moving ahead

Jan 18, 2002

Indo Rama Synthetics (India) Ltd. has managed to bring some life back into its topline. After slipping in the second quarter (net sales declined by 14%) the company has managed to post respectable growth. However, damage from 2QFY02 is reflecting on the nine month performance.

(Rs m)3QFY013QFY02Change9mFY019mFY02Change
Net Sales 3,732 4,056 8.7% 12,707 12,688 -0.1%
Other Income 11 20 81.8% 93 76 -18.3%
Expenditure 3,016 3,268 8.4% 10,570 10,297 -2.6%
Operating Profit (EBDIT) 716 788 10.1% 2,137 2,391 11.9%
Operating Profit Margin (%)19.2%19.4% 16.8%18.8% 
Interest 396 272 -31.3% 1,259 897 -28.8%
Depreciation 269 270 0.4% 798 807 1.1%
Profit before Tax62266329.0%173763341.0%
Extraordinary items - 33   - 136  
Tax - 83   - 224  
Profit after Tax/(Loss) 62 150 141.9% 173 403 132.9%
Net profit margin (%)1.7%3.7% 1.4%3.2% 
No. of Shares (eoy) 156 166   156 166  
Diluted earnings per share*1.53.6 1.43.2 
P/E Ratio  2.2    2.5  
(*annualised)      

Having said that, the growth in topline is impressive considering the prevailing weakness in the industry. Textile export growth has been significantly hit with the slump in global trade and domestic polyester demand is also sluggish, which has led to reduced realisations. Consequently, the rise is likely to have resulted from focus on specialty grades and/or higher volumes.

Despite the difficult demand scenario, operating margins of the company have improved, which could be the upshot of lower feedstock prices. Oil prices have declined 30% from the highs touched post September 11. This is likely to have reflected on naphtha prices. Raw material expenses are down 19.6% and 5.2% YoY for three and nine months ended December '01 respectively.

The company continues to cut down on interest costs, which have been declining, YoY, over the past three quarters of the fiscal. Efforts on improving working capital efficiency and capital restructuring exercises seem to have yielded results. The company has implemented a resource planning system, J.D. Edwards, which could tighten working capital cycle.

Higher operating profits and lower interest expense has enabled the company to post strong growth in pre-tax profits. Tax liability in the current fiscal is due to implementation of accounting standard - 22, Accounting for Taxes on Income. The company has incurred a cumulative deferred tax asset for the period upto march 2001. Extraordinary items for 9mFY02 pertain primarily to doubtful debts. At Rs 8.1 the scrip trades on a dismal valuation of 2.5x 9mFY02 annualised earnings.

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