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Punjab Tractors: Short term hiccups

Jan 30, 2002

Punjab Tractor (PTRA) has reported a sharp fall in profits in the third quarter ended December 31, 2001. Pricing pressure and a subdued demand scenario have also exercised a downward pressure on margins.

(Rs m)3QFY013QFY02Change9mFY019mFY02Change
Net sales 2,690 2,325 -13.6% 7,297 6,915 -5.2%
Other Income 3 - 20 37
Expenditure 2,139 1,874 -12.4% 5,881 5,572 -5.3%
Operating Profit (EBDIT) 551 451 -18.1% 1,416 1,343 -5.2%
Operating Profit Margin (%)20.5%19.4%19.4%19.4%
Interest - 30 - 68
Depreciation 43 43 0.0% 131 131 0.0%
Profit before Tax 511 378 -26.0% 1,305 1,181 -9.5%
Tax 153 112 -26.8% 391 351 -26.8%
Profit after Tax/(Loss) 358 266 -25.7% 914 830-9.2%
Net profit margin (%)13.3%11.4%12.5%12.0%
No. of Shares (m) 60.8 60.8 60.8 60.8
Diluted Earnings per share* 23.6 17.5 20.1 18.2
P/E Ratio 9.7 9.3

The reasons for a 14% decline in sales are apparent. Though the company reported just a 3% fall in sales in the first half of the current fiscal as against a 16% fall in industry volumes, in the third quarter, tractor sales plummeted for PTRA. For October and November 2001, volume sales of PTRA fell by 23% and 21% respectively. But the company has managed to increase market share marginally in the first nine months of the current fiscal.

For 9mFY02, net profits have come down by 9%. We expect the company to report a 6% fall in sales and a 11% fall in net profits for FY02. With a good kharif output in the current fiscal, tractor demand is expected to rise in the fourth quarter of the current year, albeit at a slower rate. We also expect the company to report higher growth in profits in FY03 on the back of a stable market share and higher margins. PTRA currently trades at Rs 170 implying a P/E multiple of 9x annualised nine months earnings. Considering the long term prospects of the industry coupled with its leadership position, PTRA is poised to capitalize on any upturn in tractor demand.

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