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Nicholas: Benefits from merger

Jan 25, 2002

Nicholas Piramal India has posted a 64% jump in revenues and a 78% jump in PBT for the quarter ended December'01. This is however, due to the merger with Rhone Poulenc India and hence the results are not comparable.

(Rs m) 3QFY01 3QFY02 % change
Net Sales 1,181 1,931 63.5%
Other Income 19 26 31.4%
Expenditure 984 1,568 59.4%
Operating Profit (EBDIT) 197 363 83.9%
Operating Profit Margin (%) 16.7% 18.8%  
Interest 34 84 145.6%
Depreciation 36 44 21.2%
Profit before Tax 146 260 78.1%
Extraordinary Items   -52  
Tax 12 77 540.8%
Profit after Tax/(Loss) 134 132 -2.0%
Net profit margin (%) 11.4% 6.8%  
Diluted number of shares 34.9 38.0  
Diluted Earnings per share* 14.1 13.8  
P/E (at current price)      

The company recorded a 210 basis point jump in operating margins. However, interest cost has gone up sharply on account of borrowings for acquisition for Rhone-Poulenc which accounted for 80% of the borrowing cost. During the current quarter, the company incurred VRS and restructuring costs for its Bhandup plant. However, the company has changed the accounting policy with regard to writing off of VRS cost with restrospective effect from April'01. Earlier the company used to fully write off VRS expenses in the year it was incurred. However, the same would now be written off over a period of 60 months. Consequent to the above change, the charge for VRS in the current quarter is lower by Rs 260 m.

Tax provision leapfrogged due to new accounting policy on deffered taxation. Further, the tax rebate hirtherto available to the company for its plant in backward area was no longer available. The increase in share capital is on account of shares issued to shareholders of Rhone-Poulenc India as per the merger.

On a like to like to basis, sales have improved by around 8%, operating margins have shown a healthy improvement of 390 basis points. Profit before tax, however, registered a negative growth due to heavy rise in interest burden as explained earlier. Cash flows from sale of Rhone's property is expected to reduce interest burden going forward.

Interest costs: Spoiling the show
Rs m 3QFY01 3QFY02 % change
Sales 1791 1,931 7.8%
Operating Profit 267 363 36.2%
Operating Profit Margin (%) 14.9% 18.8%  
Interest 35 84 140.0%
PBT 277 260 -6.1%

At the current market price of Rs 225, the stock trades on a P/E of 10.7x expected earnings for FY02. The benefits due to synergies in operations, reduction in working capital requirements and savings in interest cost is expected to happen only in the next year. Valuations going forward would look attractive if the management is able to achieve a fast payback from its acquisition, as expected.

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