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Lakshmi Energy: Interest costs drag bottomline
Feb 15, 2011

Lakshmi Energy and Foods Limited has announced its 1QFY11 results. The company has reported a 3.5% YoY growth in sales and 36.6% YoY fall in net profits. Here is our analysis of the results.

Performance summary
  • Consolidated top-line increased by 3.5% YoY during 1QFY11.
  • Consolidated operating (EBITDA) margins expanded by 3.3% due to slower growth in operating expenses as compared to sales.
  • Consolidated net profit fell by 36.6% YoY as a result of sharp jump in interest costs.


Consolidated picture
(Rs m) 1QFY10 1QFY11 Change
Net sales      2,030      2,101 3.5%
Expenditure      1,541      1,526 -1.0%
Operating profit (EBDITA)  490  576 17.6%
EBDITA margin (%) 24.1% 27.4%  
Other income    -        0  
Interest  140  314 124.0%
Depreciation    89    96 8.2%
Profit before tax  261  167 -36.2%
Minority Interest    -      -    
Tax    24    16 -31.8%
Profit after tax/(loss)  237  150 -36.6%
Net profit margin (%) 11.7% 7.1%  
No. of shares (m)    63    63  
Diluted earnings per share (Rs)*   12.0  
Price to earnings ratio (x)*     3.8  
* 12 month trailing

What has driven performance in 1QFY11?
  • Sales are higher primarily due to higher offtake in the agri business. The sales in the agri business grew by 16% YoY while the company did not operate its energy business resulting in no contribution from this segment to the company’s top line.

    Consolidated cost break-up
    as a % of net sales 1QFY10 1QFY11
    Total Cost of goods 68.7% 64.9%
    Staff Cost 1.4% 1.0%
    Other Expenditure 5.8% 6.7%

  • Operating income increased by 17.6%. This was a result of fall in raw material and staff costs. While raw material costs fell by 2% YoY, staff costs fell by 26% YoY. Operating income would have been higher but for a sharp rise in other expenditure. Other expenditure increased by 20% YoY during the quarter. On a segmental basis, operating income of agri business increased by 43.5% YoY.

  • Net profit of the company fell by 36.6% YoY. This was the result of a sharp increase in interest expense. Interest expense increased by 124% YoY during the quarter.

What we expect?
At a price of Rs 45, the stock is trading at 2.3 times our estimated FY13 earnings. The company has recently taken the initiative to increase its presence in the retail market through basmati rice. For this, the company has taken on addition debt to fund its inventory. The company believes that the profitability of this venture would be much higher than that of its core business (trading with the FCI). We believe the next 2/3 quarter will be crucial for the company to make a success of its new initiative.

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