Indo Gulf: Outperformance continues - Views on News from Equitymaster

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Indo Gulf: Outperformance continues

Jan 28, 2002

Indo Gulf has managed another excellent quarter. While sales have grown by 12%, net profit has grown by around 26% due to considerable rise in operating margins. The rise in operating margins is encouraging particularly considering a backdrop of sharp fall in copper prices on a year on year basis.

(Rs m)3QFY013QFY02Change
Sales 6,864 7,651 11.5%
Other Income 65 119 83.0%
Expenditure 5,528 5,912 7.0%
Operating Profit (EBDIT) 1,336 1,739 30.1%
Operating Profit Margin (%)19.5%22.7%
Interest 341 306 -10.3%
Depreciation 294 313 6.3%
Profit before Tax 765 1,239 61.8%
Other Adjustments -
Tax 65 357 452.5%
Profit after Tax/(Loss) 701 882 25.8%
Net profit margin (%)10.2%11.5%
No. of Shares (eoy) (m) 225.2 225.2
Diluted Earnings per share 12.4 15.7
P/E (at current price)2.1

Copper business now accounts for 85% of the company's revenues and contributes around 90% of the company's profits. Sales revenues from Copper business were up 27%, exports outsmarting with a 186% growth in revenues. The remarkable performance was led by 39% growth in volumes with a slide of 12% in realisations. Production volumes of DAP was up 76%. Sales from Urea business however, recorded a negative growth on account of reassessment of the retention prices.

A combination of fertilisers (DAP) and copper business helps the company in reaping significant cost synergies as sulphuric acid which is raw material for DAP, is a by product of Copper production. Similarly, the recently commenced precious metal refinery operates on a waste product from copper ore. This facilitates higher margins for the company. As far as urea business is concerned any change in the fertiliser policy is expected to benefit Indo Gulf significantly, as it remains one of the most efficient producers of urea in the country.

  • Read our recent report on the company.

    Copper prices have improved by around 10%, from their low in Oct'01. The company is expecting further expanding its copper production capacity with a eye on the export market. The results for the current quarter purely reflect growth on account of volumes. Any recovery in copper prices could lead to a sharp spurt in bottomline.

    At the current market price of Rs 37, the stock is trading at a P/e of 2.4x 3QFY02 annualised earnings.

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