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Aventis: Ramp up in exports - Views on News from Equitymaster

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Aventis: Ramp up in exports

Feb 19, 2009

Performance summary
  • Net sales grow by 13% YoY during the year led by strong performances of both the domestic and export segments.
  • Operating margins remain stable at 23% during the year. However, the same improve by 3.4% to 22% during 4QCY08.
  • Net profits grow by 15% YoY during the year driven by the strong performance at the operating level and higher other income.
  • The Board recommends a total dividend of Rs 16 per share for the year (dividend yield of 2%).

Financial performance: A snapshot

(Rs m) 4QCY07 4QCY08 Change CY07 CY08 Change
Net sales 2,150 2,864 33.2% 9,163 10,365 13.1%
Expenditure 1,750 2,233 27.6% 7,060 7,978 13.0%
Operating profit (EBIDTA) 400 631 57.8% 2,103 2,387 13.5%
EBDITA margin (%) 18.6% 22.0%   23.0% 23.0%  
Other income 72 123 70.8% 312 394 26.3%
Interest - 2   2 3 50.0%
Depreciation 46 44 -4.3% 185 182 -1.6%
Profit before tax 426 708 66.2% 2,228 2,596 16.5%
Tax 156 255 63.5% 784 934 19.1%
Profit after tax/(loss) 270 453 67.8% 1,444 1,662 15.1%
Net profit margin (%) 12.6% 15.8%   15.8% 16.0%  
No. of shares (m)       23.0 23.0  
Diluted earnings per share (Rs)*         72.3  
Price to earnings ratio (x)*         12.2  
(* on a trailing 12-month basis)

What has driven performance in CY08?
  • Aventis clocked a decent 13% YoY growth in sales during CY08. This was largely led by the 10% YoY growth in domestic sales and more importantly a robust 23% YoY growth in exports. The performance of the latter was particularly strong in the fourth quarter logging in a superlative growth of 108% YoY thereby shoring up performance for the full year. While no details have been divulged, we believe that part of the reason for the exports growth could be attributed to the depreciation of the rupee against the dollar during the year.

    Revenue break-up

    (Rs m) 4QCY07 4QCY08 Change CY07 CY08 Change
    Domestic sales 1,709 2,011 17.7% 7,031 7,731 10.0%
    Export sales 331 688 107.9% 1,704 2,102 23.4%
    Total 2,040 2,699 32.3% 8,735 9,833 12.6%

  • Operating margins remained stable at 23% during the year. While raw material costs (as percentage of sales) dipped, other expenditure witnessed a rise. For the fourth quarter, however, operating margins improved from 18.6% in 4QCY07 to 22% in 4QCY08. Going forward, we do not foresee any significant margin improvement and expect operating margins to remain under pressure.

  • Aventisí bottomline grew by 15% YoY during the year led by the strong performance at the operating level and higher other income. For the fourth quarter, growth in net profits was robust at 68% YoY led by the healthy 58% YoY growth in operating profits and higher other income (up 71% YoY).

What to expect?
At the current price of Rs 880, the stock is trading at a multiple of 12.3 times our estimated CY10 earnings. In the domestic market, Aventisí strong presence in the fast-growing lifestyle segment along with its focus on strategic brands are expected to be the key growth drivers going forward. Having said that, we expect the pressure on margins to continue. The fact that the exports segment witnessed a growth in sales during the last three quarters is an encouraging sign. That said, the growth in export sales has been inconsistent in the past and more clarity is likely to emerge on this front over the next few quarters. Overall, we maintain our positive view on the stock.

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