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Kanoria Chemicals: Bucks the margin trend
Feb 8, 2010

Performance summary
  • Topline declines by 16% YoY during the quarter as both the segments fail to grow their revenues
  • Operating margins expand by nearly 2% on the back of a sharp fall in raw material costs
  • Bottomline during the quarter stands at Rs 61 m as opposed to a loss of Rs 44 m in the comparable quarter last year as higher other income and lower extraordinary expenses add further to the operating level buoyancy


(Rs m) 3QFY09 3QFY10 Change 9mFY09 9mFY10 Change
Net sales 1,157 969 -16.3% 3,805 3,263 -14.2%
Expenditure 974 798 -18.1% 2,993 2,574 -14.0%
Operating profit (EBDITA) 183 171 -6.7% 812 689 -15.2%
EBDITA margin (%) 15.8% 17.6%   21.3% 21.1%  
Other income 0 30   2 32  
Interest (net) 32 55 71.4% 227 176 -22.5%
Depreciation 98 100 2.1% 288 299 3.8%
Profit before tax 53 47 -12.9% 298 245 -17.7%
Extraordinary income/(expense) (83) 34   (186) 105  
Tax 15 19 28.9% 42 84 99.5%
Profit after tax/(loss) (44) 61   70 267 280.9%
Net profit margin (%) -3.8% 6.3%   1.8% 8.2%  
No. of shares (m) 56.3 56.3   56.3 56.3  
Diluted earnings per share (Rs)*         6.1  
Price to earnings ratio (x)**         5.3  
* on trailing twelve months earnings

What has driven performance in 3QFY10?
  • The company’s topline fell by 16% YoY during the quarter. Both the segments, viz. chloro chemicals and alco chemicals witnessed a similar 20% fall in revenues and hence, could not contribute positively to the company’s overall volumes. The fall in topline was driven more by fall in realizations than volume as the company chose to pass on lower prices to the end consumers. However, going forward, as key products of the company like caustic soda and formaldehyde, go up in price, it should reflect in the company’s topline performance as well.

    Cost break up
    (Rs m) 3QFY09 3QFY10 Change 9mFY09 9mFY10 Change
    Raw materials 544 406 -25.3% 1,615 1,285 -20.4%
    % sales 47.0% 41.9%   42.4% 39.4%  
    Staff cost 81 81 0.5% 243 246 1.2%
    % sales 7.0% 8.4%   6.4% 7.5%  
    Power and fuel 168 164 -2.3% 568 605 6.6%
    % sales 14.5% 16.9%   14.9% 18.5%  
    Other expenditure 182 147 -19.3% 567 438 -22.7%
    % sales 15.7% 15.1%   14.9% 13.4%  

  • Decline in company’s operating profits was restricted to just 7% YoY. Operating margins expanded by nearly 2%. Raw material cost fell by nearly 5% as a percentage of sales and were the key contributors towards the expansion in company’s operating margins. However, other expenses like staff costs and power and fuel expenses tended upwards as a percentage of sales and helped restrict any further improvement in operating performance

  • Interest expenses came in higher by 71% YoY and this further affected the company’s profitability, resulting into a PBT fall of 13% YoY. However, extraordinary income to the tune of positive Rs 34 m as opposed to a negative 83 m during the same quarter last year, helped the company post a bottomline of Rs 61 m as compared to a loss of Rs 44 m during 3QFY09. The extraordinary income arises from currency gains on the company’s outstanding FCCBs.

What to expect?
At the current price of Rs 32, the stock trades at a P/E multiple of 4 times its expected FY12 earnings per share. While the topline of the company has come in below our projections, the bottomline has come in higher. We continue to remain positive on the stock from a medium term perspective.

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