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Indian Rayon: Realisations on the move

Feb 7, 2001

Indian Rayon has reported a 51% rise in sales in for the third quarter ended 31st December 2000 to Rs 3,803 m. Operating profit has also gone up by 41% in 3QFY01 to Rs 526 m compared to Rs 374 m in 3QFY00. However, a sharp rise in raw material cost (by 52% to Rs 1,751 m in 3QFY01) has led to a 100 basis point drop in operating margins from 14.8% in 3QFY00 to 13.8% in 3QFY01.

(Rs m) 3QFY00 3QFY01 Change
Sales 2,523 3,803 50.7%
Other Income 93 56 -40.1%
Expenditure 2,149 3,277 52.5%
Operating Profit (EBDIT) 374 526 40.5%
Operating Profit Margin (%) 14.8% 13.8%
Interest 151 173 14.6%
Depreciation 150 181 20.6%
Profit before Tax 166 228 36.8%
Other Adjustments - (23)
Tax - 14
Profit after Tax/(Loss) 166 191 14.6%
Net profit margin (%) 6.6% 5.0%
No. of Shares (eoy) (m) 59.9 59.9
Earnings per share* 11.1 12.7
*(annualised)

The drop in operating margins would have been sharper had not been for a significant rise in realisation for carbon black and insulators. Carbon black realisation has gone up by Rs 27,191 per tonne for the first nine months of the current year. This on the back of a considerable rise in Carbon Black Feed Stock (CBFS) prices and sluggish demand from tyre industry is definetely a creditable performance. The company has increased prices to offset the substantial rise in CBFS prices. Realisations has also gone up for the insulator division by 8.5% for the first nine months. However, realisations for its viscose filament yarn division has declined by 5% in the first nine months of the current year.

Realisations ticks
(Rs/unit) 9 months ended change
FY00 FY01
VFY 154 146 -5.2%
Carbon black 21,990 27,191 23.7%
Insulators 63,859 69,260 8.5%
Textiles
Flax yarn 428 390 -8.9%
Worsted yarn 343 363 5.8%
Synthetic yarn 99 114 15.2%

One of the key driver for a 51% growth in topline in the third quarter is the recently acquired garments business. For the first nine months of the current year, turnover of this division stands at Rs 2,536 m out of which exports accounted for Rs 240 m. Going forward, we believe that contributions from exports would increase significantly as the company has acquired the overseas rights from Coats Viyella for marketing its brands in Africa, Middle East and Europe for US$ 2.3 m. Moreover, the company has also plans to open new Planet Fashion showrooms in these countries, which should also add to the topline growth. However, operating margins of this division has dropped marginally to 18.8% in the first nine months of the current year as opposed to 18.9% in the corresponding period of the previous year, which was primarily due to the increase in advertising expenses to Rs 353 m.

In view of the company's plan to exit from Sea Water Magnesia business, the company has realised Rs.195 m on sale of various assets and has confirmed orders of Rs 86 m in hand. However, the company has not considered the net surplus on sale of assets in the quarterly results.

The stock is trading at Rs 85 at a P/E multiple of 8.2x the annualised nine months earnings. If we were to include the income from sale of assets of the sea water magnesia plant (till date the company has sold assets worth Rs 195 m and has confirmed orders for other assets worth Rs 86 m), the nine months net profit is higher by Rs 281 m to Rs 742 m.


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