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Maharashtra Seam.: Margins take some sheen away - Views on News from Equitymaster

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Maharashtra Seam.: Margins take some sheen away

Feb 3, 2009

Performance summary
  • Topline grew by 56% YoY during the quarter, on the back of higher realisations.
  • Operating profits grew by 27.1% YoY, lower than the topline on account higher operating expenses, resulting into EBITDA margin contraction of 3.4%.
  • Bottomline grew by 25.3% YoY, lower than topline and operating profits on account of higher interest outgo.
  • For the nine month period, net profits grew by 12.5%YoY on the back of 38.4% YoY growth in the topline.


Standalone financial snapshot
(Rs m) 3QFY08 3QFY09 Change 9mFY08 9mFY09 Change
Net sales 3,770 5,881 56.0% 11,145 15,420 38.4%
Expenditure 3,084 5,010 62.4% 8,806 12,833 45.7%
Operating profit (EBDITA) 686 871 27.1% 2,340 2,587 10.6%
EBDITA margin (%) 18.2% 14.8%   21.0% 16.8%  
Other income 116 149 28.8% 283 433 53.0%
Interest (net) 7 45 554.4% 19 104 440.6%
Depreciation 44 45 2.0% 133 136 2.0%
Profit before tax 750 931 24.0% 2,470 2,780 12.5%
Extraordinary items            
Tax 239 290 21.4% 796 897 12.7%
Profit after tax/(loss) 512 641 25.3% 1,674 1,883 12.5%
Net profit margin (%) 13.6% 10.9%   15.0% 12.2%  
No. of shares (m) 70.5 70.5   70.5 70.5  
Diluted earnings per share (Rs)*         34.4  
Price to earnings ratio (x)**         3.8  
(* annualised, ** on trailing twelve months earnings)

What has driven performance in 3QFY09?
  • The topline grew by robust 56% YoY on account of higher realizations during the quarter. Revenues from steel pipes and tubes division grew by around 33% YoY backed by increased sales and exports realizations. The order book of the company stood Rs 8.23 bn at the end of quarter.

  • Operating profits grew by 27.1% YoY, lower than the topline mainly on account of higher operating expenses. Operating expenses grew by 62.4% YoY backed by increased cost of raw materials and other expenditure (as % sales) during the quarter as compared to corresponding period last year. Operating margins stood at 14.8% during the quarter.

    Cost break up
    (Rs m) 3QFY08 3QFY09 Change
    Raw materials 2,513 4,136 64.6%
    % sales 66.7% 70.3%  
    Staff cost 50 61 21.0%
    % sales 1.3% 1.0%  
    Manufacturing expenses 434 483 11.4%
    % sales 11.5% 8.2%  
    Other expenditure 87 330 279.1%
    % sales 2.3% 5.6%  


  • The bottomline of company grew by 25.3% YoY, lower as compared to topline growth. This was mainly on account of more than six fold jump in interest expenses but since the base was very small, it had a small negative impact on the company’s profitability. Thus, lower operating margins and higher interest expenses combined together to transform 56% growth in topline to a 25% growth in bottomline during the quarter.

What to expect?
At the current price of Rs 129, the stock is trading at a multiple of 3.4x the company’s expected FY11 earnings estimate. Given that the company is well on its way to meeting our FY09 estimates, we do not feel the need to revise our estimates. We remain positive on the stock.

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