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LEAF: All round growth - Views on News from Equitymaster

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LEAF: All round growth
Jan 24, 2008

Performance summary
  • Topline grows by 36% YoY in 3QFY08. Higher volume and average realisations lead the way.
  • Expenses grow at a lower rate than the topline resulting into EBITDA margin expansion of 380 basis points.

  • The net profits grew at a slower rate than the topline due to higher interest, depreciation and tax costs.

(Rs m) 3QFY07 3QFY08 (%) Change 9mFY07 9mFY08 (%) Change
Net sales 1,820 2,466 35.5% 4,912 6,446 31.2%
Expenditure 1,485 1,920 29.2% 4,075 5,041 23.7%
Operating profit (EBDITA) 335 546 63.3% 838 1,406 67.8%
EBDITA margin (%) 18.4% 22.2%   17.1% 21.8%  
Other income 3 3 -6.7% 5 13 141.8%
Interest 12 111 850.4% 30 179 506.8%
Depreciation 12 58 383.3% 34 156 362.4%
Profit before tax 314 380 21.0% 780 1,084 39.0%
Tax 31 50 61.0% 78 130 67.1%
Profit after tax/(loss) 283 330 16.6% 702 954 35.8%
Net profit margin (%) 15.5% 13.4%   14.3% 14.8%  
No. of shares (m) 57.2 60.0   225.8 60.0  
Diluted earnings per share (Rs)*         18.6  
Price to earnings ratio (x)* 10.0% 13.3%     14.5  
* 12 month trailing

What has driven performance in 3QFY08?
  • Lakshmi Energy and Foods (LEAF) announced a topline growth of 36% YoY in 3QFY08. Capacity expansions aided the strong volume growth. The volume of rice increased by 26% YoY, while realisations improved by 16% YoY. The rice division contributed 86% to the topline as compared to 81% in 3QFY07. Rice bran oil and cattle feed realisations also improved by 21% YoY and 15% YoY. We expect the momentum to be sustained in the next quarter on the back of product launches and capacity expansions.

  • Operating margins improved by 3.8% YoY in 3QFY08. Lower raw material costs (77% of sales in 3QFY08 as compared to 80% in 3QFY07) aided the margin improvement. Further the company’s by products also helped the expansion in margins.

  • LEAF’s bottomline grew by 17% YoY. Higher operating income aided the growth. However, higher interest and depreciation cost played spoilsport. The interest cost and depreciation were higher on account of expansion of capacities. Even the tax rate was higher as it shot up from 10% in 3QFY07 to 13% in the current quarter.

What to expect?
At the current price of Rs 270, the stock is trading at a price to earnings multiple of 8.4 times our estimated FY10 earnings. LEAF has one of the best business models in the agro industry where every by-product is now being or will be exploited commercially. It has branched out into the processing of various value added products, which are likely to add significantly to the company’s topline going forward. It has also lined up capacity expansions in the coming years. LEAF enjoys significant advantage due to its size, higher value by products, cogeneration capacities and fiscal benefits. On account of the company’s size, its integrated model and excellent growth prospects we remain positive on the company’s long term prospects.

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