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EID Parry: Tough times continue! - Views on News from Equitymaster
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EID Parry: Tough times continue!
Jan 28, 2008

Performance summary
  • EID Parry on a standalone basis, reports topline growth of 28% YoY in 3QFY08. Low domestic and international prices, rupee appreciation continues to affect its performance.
  • On a standalone basis, the company suffers losses at the operating level on account of lower sugar prices and higher raw material prices.

  • The company yet again reports losses on a standalone basis led by operating losses, higher interest costs (on account of higher level of inventory and higher rate of interest) and depreciation.

  • On a consolidated basis, the topline grows by 70% YoY, while bottomline grows by 13% YoY in 3QFY08.

Standalone picture
Rs(m) 3QFY07 3QFY08 (%) Change 9mFY07 9mFY08 (%) Change
Gross sales 1,642 2,050 24.8% 5,120 4,544 -11.3%
Excise duty 99 77 -22.4% 271 223 -17.9%
Net sales 1,543 1,973 27.9% 4,848 4,321 -10.9%
Expenditure 1,508 2,307 53.0% 4,384 5,068 15.6%
Operating profit (EBDITA) 35 (334)   464 (748)  
EBDITA margin (%) 2.3%     9.6%    
Other income 78 281 262.8% 334 631 88.9%
Interest -9 69   -10 98  
Depreciation 81 110 36.2% 243 326 34.2%
Profit before tax 41 (232)   565 (540)  
Extraordinary item - -   1,181 -  
Tax 3 2 -36.0% 357 5 -98.7%
Profit after tax/(loss) 38 (233)   1,390 (545)  
Net profit margin (%) 2.5%     28.7%    
No. of shares (m) 89.3 89.3   89.3 89.3  

What has driven performance in 3QFY08?
  • On a standalone basis, the topline grew by 28% YoY in 3QFY08. However, its contribution to total consolidated sales (which grew by 70% YoY) fell from 22% in 3QFY07 to 17% in the current quarter. Low domestic and international prices, rupee appreciation making exports unattractive led to the dismal performance. On a consolidated basis, the sugar division grew by 32% YoY, while bio products reported a 14% YoY growth. The farm inputs continue to drive growth with 87% YoY jump in 3QFY08.

  • EID Parry crushed 0.5 m tonnes of cane compared to 0.6 m tonnes in the corresponding period. The average sugar realization per MT for the quarter was Rs 12,535 compared to Rs 15,985 in 3QFY07 (down 22% YoY). Lower volumes and realisations led to the dismal performance of the sugar division. During the quarter, its raw sugar exports were higher by 59% YoY. Also, it exported 50.3 m units to the TNEB Grid compared to 22.1 m units in 3QFY07.

  • On a standalone basis, the company suffered losses at the operating level on account of lower sugar prices and higher raw material prices. The raw material prices increased by 57% YoY in 3QFY08. On a consolidated basis, there was marginal expansion in margins in 3QFY08 on account of lower staff and other expenses. On the PBIT front, while sugar continued to face bitter times, farm inputs witnessed expansion by 5.4% YoY in 3QFY08.

    Consolidated Segment-wise performance
    (Rs m) 3QFY07 3QFY08 (%) Change 9mFY07 9mFY08 (%) Change
    Sugar 1,586 2,093 31.9% 5,050 4,638 -8.1%
    PBIT margin (%) -0.4% -13.4%   7.4% -15.6%  
    % of revenue 21.5% 16.5%   20.6% 11.9%  
    Bio products 96 109 13.9% 272 325 19.4%
    PBIT margin (%) 23.4% 23.4%   8.9% 10.6%  
    % of revenue 1.3% 0.9%   1.1% 0.8%  
    Farm Inputs 5,278 9,866 86.9% 16,702 32,263 93.2%
    PBIT margin (%) 7.7% 13.1%   9.2% 11.5%  
    % of revenue 71.5% 77.7%   68.2% 82.8%  
    Others 427 627 47.0% 2,471 1,722 -30.3%
    PBIT margin (%) - -   - 0.1%  
    % of revenue 5.8% 4.9%   10.1% 4.4%  
    Total revenues 7,387 12,695 71.9% 24,495 38,948 59.0%

  • The company yet again reported losses on a standalone basis led by operating losses, higher interest costs (on account of higher level of inventory and higher rate of interest) and depreciation. With the sugar sector still reeling under pressure, the company’s bottomline continues to face the brunt. On a consolidated basis, though the profits grew by 13% YoY in 3QFY08, they fell by 25% YoY (excluding extraordinary) in 9mFY08. During the quarter, improvement in the operating profits and higher other income aided the bottomline growth. However, interest, depreciation and tax costs continued to play spoilsport.

What to expect?
EID Parry like its peers in the sugar sector continues to face bad times. Low sugar realisations have hampered growth. Though the ethanol-blending programme has been announced, any major changes are yet to be seen. With 2007 being a bitter year for the sugar sector, 2008 looks difficult too unless corrective steps are taken.

Due to the late start to the crushing season, expectations of sugar production may be lower than initial estimates of 29 to 30 m tons thereby supporting prices. However, with higher opening stock and stable consumption, inventories could reach about 15 to 16 m tons next year thereby suppressing sugar prices. Moreover, the high carrying costs and interest costs would affect the bottomline.

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