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Aksh Optifibre: Margins maraudered - Views on News from Equitymaster
 
 
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  • Jan 25, 2002

    Aksh Optifibre: Margins maraudered

    On an annual basis, Aksh Optifibre Ltd. has posted a respectable topline growth, especially keeping in mind the difficult industry scenario for telecom companies. Having said that, the rapid downturn in the industry over the past eighteen months is reflecting on the bottomline.

      QoQ   YoY  
    (Rs m) 2QFY02 3QFY02 Change 3QFY01 3QFY02 Change
    Net Sales 554 431 -22.1% 284 431 52.1%
    Other Income 2 3 48.9% 4 3 -23.4%
    Expenditure 480 402 -16.1% 245 402 64.0%
    Operating Profit (EBDIT) 75 29 -60.7% 39 29 -23.9%
    Operating Profit Margin (%) 13.5% 6.8%   13.6% 6.8%  
    Interest 7 9 37.1% 6 9 45.1%
    Depreciation 16 16 5.2% 5 16 265.5%
    Profit before Tax 54 7 -88.0% 32 7 -79.3%
    Tax 10 (7)   3 (7)  
    Profit after Tax/(Loss) 44 14 -68.2% 29 14 -51.8%
    Net profit margin (%) 7.9% 3.2%   10.2% 3.2%  
    No. of Shares (m) 22.0 22.0   22.0 22.0  
    Diluted earnings per share* 7.9 2.5   5.2 2.5  
    P/E ratio   23.7     23.7  
    * annualised            

    The growth in topline could largely be a result of the company ramping up operations at its four plants and widening its product portfolio to cater to a larger market. Although these efforts could be steps to beat the slowdown, the company does not seem to have escaped the long arm of global and domestic economic downturn. Not only are YoY growth rates declining, QoQ sales are registering negative growth over the past two quarters. Optic fibre cable manufacturers seem to have taken a double hit on the topline. The drop in global demand, besides affecting sale volumes, has also led to a sharp slide in optic fibre prices.

    While sale volumes are difficult to achieve and realisations sliding, the ramp up in production has kept costs sticky. Consequently, operating margins have come under severe pressure. OPM has declined by 6.7 percentage points QoQ, which could reflect the poor pricing power of the industry, currently. Operating profits, YoY, have been adversely affected by the slide in margins. On a nine month basis, operating profits and margins have increased due to higher YoY growth in the first two quarters.

    (Rs m) 9mFY01 9mFY02 Change
    Net Sales 759 1,506 98.4%
    Other Income 14 8 -40.5%
    Expenditure 675 1,256 86.2%
    Operating Profit (EBDIT) 85 249 195.2%
    Operating Profit Margin (%) 11.1% 16.6%  
    Interest 20 21 4.3%
    Depreciation 12 42 253.2%
    Profit before Tax 66 194 195.1%
    Tax 5 36  
    Profit after Tax/(Loss) 60 158 161.6%
    Net profit margin (%) 8.0% 10.5%  
    No. of Shares (eoy) (m) 22.0 22.0  
    Diluted earnings per share* 3.7 9.6  
    P/E ratio   6.3  
    * annualised      

    With new capacity getting commissioned increased depreciation provisions is reflecting on the income statement. Also, expansion in operations is likely to have resulted in higher working capital requirement, which has led to higher interest costs. The effective tax rate, YoY, for 9mFY02 has increased substantially from 8.3% to 18.7%.

    At Rs 60 the scrip is trading on a multiple of 6.3x 9mFY02 annualised earnings. In the current fiscal, the stock has been trading in a P/E band of 5x-8x. Perceptions on telecom equipment companies have shifted dramatically from technology to commodity stocks. The current operating margins seem to reflect commodity characteristics.

     

     

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