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Ess Dee Aluminium: Health growth - Views on News from Equitymaster
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Ess Dee Aluminium: Health growth
Feb 17, 2011

Ess Dee Aluminium Limited has announced its 3QFY11 results. The company has reported a 18.5% YoY and 22.6% YoY growth in sales and net profit respectively. Here is our analysis of the results.

Performance summary
  • Consolidated sales for 3QFY11 grew by a robust 18.5% YoY largely aided by its standalone business.
  • Operating (EBITDA) margin fell by 1.5% to 28.9% during the quarter on the back of higher raw material costs as a percentage of sales.
  • Net profit of the company grew by 22.6% YoY aided by increase in operating income, higher other income and fall in effective tax rate.
  • For 9mFY11, the company’s net profit grew by 44.6% YoY while net profit margins grew by 4% to stand at 21%. This performance came on the back of increase in operating income, higher other income, reversal of impairment of assets and fall in effective tax rate.

Consolidated financial picture
(Rs m) 3QFY10 3QFY11 Change 9mFY10 9mFY11 Change
Net sales 1,577 1,869 18.5%  4,297  5,022 16.9%
Expenditure 1,097 1,330 21.2%  3,079  3,607 17.2%
Operating profit 480 539 12.4%  1,218  1,415 16.1%
Operating margins (%) 30.4% 28.9%   28.4% 28.2%  
Other Income 11 45 308.4% 24  109 348.2%
Interest (net) 38 61 61.8%  144  175 22.0%
Depreciation 43 50 14.4%  129  145 12.4%
Reversal of impairment of assets - -   -  103  
Profit before Tax 410 473 15.5%  970  1,307 34.8%
Extraordinary item - -   - -  
Tax 100 93 -6.8%  242  252 4.3%
Minority interest  0 -   1 -  
Profit after Tax/(Loss) 310 380 22.6%  729  1,055 44.6%
Net profit margin (%) 19.7% 20.4%   17.0% 21.0%  
No. of Shares (m) 28 32   28 32  
Diluted earnings per share (Rs)*       24.0  
Price to earnings ratio (x)*       17.0  
* trailing twelve month earnings

What has driven performance in 3QFY11?
  • Top line of the company expanded mainly driven by standalone sales. Standalone sales which make up 95% of Ess Dee Aluminium’s consolidated sales grew by 41% YoY. The increase in sales of the company can be attributed to increase in domestic offtake as the economy picked up.

    Cost break-up...
    (Rs m) 3QFY10 3QFY11 Change 9mFY10 9mFY11 Change
    Raw materials           974        1,200 23.2%         2,714         3,217 18.5%
    % sales 61.8% 64.2%   63.2% 64.1%  
    Staff cost  72  68 -4.9% 187 199 6.5%
    % sales 4.6% 3.6%   4.3% 4.0%  
    Other expenditure  51  61 19.8% 178 191 7.4%
    % sales 3.2% 3.3%   4.1% 3.8%  

  • Operating income grew by 12.4% YoY during the quarter. This was slower than top line growth and was a result of sharp increase in raw material costs. Raw material costs for the quarter grew by 23.2% YoY. However, fall in staff costs helped provide support to operating income. Staff costs fell by 5% YoY during the quarter.

  • The company’s net profit increased by 22.6% during the quarter as a result of increase in operating income, higher other income and fall in effective tax rate. While other income increased by 308%, effective tax rate fell from 24% in 3QFY10 to 20% in 3QFY11.

What we expect?
At a price of Rs 408 the stock is trading at 5.2 times our estimated FY13 earnings. The company has benefitted from growth in Pharma and FMCG sectors, while the acquisition of IFL has contributed to the company’s growth in the form of new capacities and tax breaks. Going forward, we expect the company to grow at a healthy rate.

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