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Kanoria Chemicals: Forex losses mar profits
Feb 4, 2011

Kanoria Chemicals has announced 3QFY11 results. Top-line increased 29.9% YoY during the quarter. However, the reported bottom line declined 19.2% YoY due to fall in other income and non-recurring gain arising on outstanding FCCB’s. Here is our analysis of the results.

Performance summary
  • Top-line grew at a healthy pace of 29.9% YoY in 3QFY11 due to strong performance from both Chloro and Alco chemicals segment.
  • Operating margins remain intact at 17.6%
  • Net profits declined 19.2% YoY in 3QFY11 due to fall in other income and non-recurring gain arising on outstanding FCCBs.


(Rs m) 3QFY10  3QFY11  Change 9MFY10  9MFY11  Change 
Sales  943 1,225 29.9%    3,191    3,401 6.6%
Other operating income  26  14 -47.3% 72 33
Expenditure  798 1,020 27.8%    2,574    2,782 8.1%
Operating profit (EBDITA)  171   218 27.8%  689  651 -5.5%
Operating profit margin (%) 17.6% 17.6% 21.1% 19.0%
Other income 30 -100.0% 32 0 -99.7%
Interest 55  55 0.9%  176  159 -9.7%
Depreciation  100   101 0.9%  299  300 0.4%
Profit before tax 47 62 34.1% 245 192 -21.8%
Tax 19 14 -27.1% 84 43 -48.7%
Exceptional items  34 1 -97.9%  105 7 -93.8%
Profit after tax/(loss) 61 49 -19.2% 267 155 -41.7%
Net profit margin (%) 6.3% 4.0% 8.2% 4.5%  
Adjusted net profit  27.4 48.5 77.0% 161.4 148.8 -7.8%
Adjusted net profit margin (%) 2.8% 3.9% 4.9% 4.3%  
No. of shares (m)         56.3  
Basic reported earnings per share (Rs) *         2.99  
P/E ratio (x) *         10.3  
* On a trailing 12-months basis

What has driven performance in 3QFY11?
  • After a lull in last quarter due to decline in caustic soda prices, the company's principal segment Chloro Chemicals witnessed a 25.9% YoY increase in revenues. Alco Chemicals, the other division of the company also performed well and posted a near 54.2% YoY increase in revenues. On account of this buoyancy, the overall topline has managed to register a healthy growth of 29.9% YoY.

    Segmental Break up
    (Rs m) 3QFY10  3QFY11  Change 9MFY10  9MFY11  Change 
    Chloro Chemicals**             
    Revenues  866            1,091 25.9% 3009 3092 2.8%
    PBIT 80.2 122 52.0% 402.3 372.8 -7.3%
    PBIT Margins  9.3% 11.2%   13.4% 12.1%  
    Alco Chemicals**             
    Revenues  261 403 54.2% 866 1080 24.7%
    PBIT 13.6 18 30.9% 52.7 49.4 -6.3%
    PBIT Margins  5.2% 4.4%   6.1% 4.6%  

  • The operating margins remain intact at 17.6% during the quarter.

  • Bottom line declined 19.2% YoY during the quarter mainly on account of decline in forex gains in 3QFY11. Adjusted for the non-recurring gains the net profits increased 77% YoY due to decline in tax rates. The effective tax rate of the company fell from about 41% in 3QFY10 to about 22% in 3QFY11.

What to expect?
At the current price of Rs 31, the stock is trading at 0.6 times its FY12 expected book value per share. After a disappointing top-line performance in the preceding quarter due to decline in caustic soda prices, the company managed to register a healthy growth in the current quarter. The company also commissioned its Formaldehyde plant in Andhra Pradesh which is expected to boost volumes going forward. We remain positive on the company’s medium term growth prospects.

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