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Ess Dee Aluminium: Acquisition drives growth - Views on News from Equitymaster
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Ess Dee Aluminium: Acquisition drives growth
Feb 1, 2010

Performance summary
  • Consolidated sales for 3QFY10 grew by a robust 53.8% YoY largely aided by IFL sales.
  • Operating (EBITDA) margin expanded by 1.4% to 30.4% during the quarter aided by lower other expenditure as a percentage of sales.
  • Net profit margin fell by 0.3% to 19.7% in spite of higher operating income due to lower other income and rise in tax expense.
  • Net profit during 9mFY10 increased by 12.5% YoY while net profit margins fell by 2.4%. This performance comes on the back of higher operating profits partly offset by lower other income, higher interest costs and higher tax expense.


Consolidated financial picture
Rs m 3QFY09 3QFY10 Change 9mFY09 9mFY10 Change
Net sales 1,025 1,577 53.8% 3,335 4,297 28.8%
Expenditure 728 1,097 50.8% 2,389 3,079 28.9%
Operating profit 298 480 61.3% 946 1,218 28.8%
Operating margins (%) 29.0% 30.4%   28.4% 28.4%  
Other Income 26 11 -58.8% 40 24 -38.4%
Interest (net) 40 38 -6.5% 90 144 59.0%
Depreciation 28 43 54.5% 51 129 152.7%
Profit before Tax 256 410 60.3% 844 970 14.9%
Extraordinary item - -   - -  
Tax 55 100 82.1% 200 242 21.1%
Minority interest 4 0   4 1  
Profit after Tax/(Loss) 205 310 51.3% 648 729 12.5%
Net profit margin (%) 20.0% 19.7%   19.4% 17.0%  
No. of Shares (m) 28 28   28 28  
Diluted earnings per share (Rs)*         (5.7)  
Price to earnings ratio (x)*         na  
* trailing twelve month earnings

What has driven performance in 3QFY10?
  • Top line of the company expanded mainly driven by IFL sales while the standalone sales grew by 22% YoY. The standalone revenue makes up 80% of Ess Dee Aluminium’s consolidated sales. The increase in sales of the company can be attributed to increase in domestic outsourcing due to lower bulk exports as a result of economic slowdown

    Cost break-up...
    (Rs m) 3QFY09 3QFY10 Change 9mFY09 9mFY10 Change
    Raw materials 620 974 57.1% 2,154 2,714 26.0%
    % sales 60.5% 61.8%   64.6% 63.2%  
    Staff cost 41 72 75.2% 96 187 93.7%
    % sales 4.0% 4.6%   2.9% 4.3%  
    Other expenditure 66 51 -23.5% 139 178 28.3%
    % sales 6.5% 3.2%   4.2% 4.1%  

  • Operating income grew by 61.3% YoY during the quarter. This jump was aided by higher sales as well as a fall in other expenditure. The increase in operating income was capped by higher staff costs and raw material costs. Staff costs during the quarter increased by 75% while expenditure on raw material increased by 57.1%. The reason for this was the IFL acquisition.

  • Net profit increased by 51% YoY during the quarter aided by growth in operating profits, higher other income partly offset by higher tax expense.

What we expect?
At a price of Rs. 363 the stock is trading at 5.9 times our estimated FY12 earnings. The company is expected to benefit from growth in Pharma and FMCG sectors, while the acquisition of IFL would contribute to the company’s growth in the form of new capacities and tax breaks. Going forward, we expect the company to post a decent top line growth.

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