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Carrier Aircon: Profits freeze - Views on News from Equitymaster
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  • Feb 19, 2001

    Carrier Aircon: Profits freeze

    Despite outperforming our sales growth expectations, Carrier Aircon's net profits have declined marginally for the first nine months of the current year. We analyse the results.

    (Rs m) 9mFY00 9mFY01 Change
    Sales 2,908 3,506 20.6%
    Other Income 22 47 111.5%
    Expenditure 2,692 3,261 21.1%
    Operating Profit (EBDIT) 216 245 13.7%
    Operating Profit Margin (%) 7.4% 7.0%  
    Interest 16 37 133.7%
    Depreciation 39 40 3.7%
    Profit before Tax 183 215 17.3%
    Tax 14 48 237.2%
    Profit after Tax/(Loss) 169 168 -1.0%
    Net profit margin (%) 5.8% 4.8%  
    No. of Shares (eoy) (m) 23.4 23.4  
    Diluted number of shares 23.4 23.4  
    Diluted Earnings per share* 9.6 9.5  

    The company has reported a 20.6% rise in sales from Rs 2,908 m to Rs 3,506 m for the first nine months of the current year. This is higher than what we had anticipated (we had anticipated a sales growth of 12.2% to Rs 3,523 m for the full year). The reason behind our assumption was that the company is losing market share in the room air conditioners segment, which accounted to 67% of FY00 turnover.

    Though sales grew by a healthy 20.6% on the first nine months of the current year, the growth in profits at the operating level has been disappointing. Operating profits have gone up just by 13.7% to Rs 245 m. This was on account of higher staff and sub-contracting costs, which have resulted in a 40 basis points decline in operating margins for the first nine months of the current year (for instance staff cost and sub-contracting charges have shot up by 150% and 65% respectively in 2QFY01).

    Despite this sharp growth in sales, net profits have dropped marginally by 10 basis points to Rs 168 m in the first nine months of the current year. Higher interest costs and tax outflow have suppressed margins at the net profit level to 4.8% in the first nine months of the current year compared to 5.8% in the corresponding period of the previous year. The effective tax rate, for instance, has shot up from 7.7% to 22.1% during the same period. Though sales growth in encouraging, the company has failed to prune expenses, which has resulted in marginal drop in net profits.

    The stock is trading at Rs 98 at a P/E multiple of 10.2x the annualised nine months earnings. On the annualised sales of Rs 4,675 m, market capitalisation to sales works out to 0.5 times (market capitalisation is 2,301 m).



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