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Lakshmi Energy.: In red on stock woes - Views on News from Equitymaster
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Lakshmi Energy.: In red on stock woes
Feb 22, 2012

Lakshmi Energy and Foods Limited has declared its results for the first quarter of financial year 2011-2012 (September ending). The company has reported a 49.4% YoY rise in sales and net loss. Here is our analysis of the results.

Performance summary
  • Consolidated revenues rose by 49.4% YoY during 1QFY12 entirely coming from agri segment and nil contribution from the energy segment.
  • Operating (EBITDA) margins slumped to a mere 6.7% from 27.4% in the year-ago quarter. The huge knock-down in profitability was on account of steep rise in raw material costs and revaluation loss of Rs 258.3 m on the unsold stock of Pusa 1121 basmati paddy at the end of 1QFY12.
  • A 64% downslide in operating income has pushed the company into a loss of Rs 187 m in 1QFY12 as compared to a profit of Rs 151 m clocked in the year ago quarter.


Consolidated picture
(Rs m) 1QFY11 1QFY12 Change
Total income 2,101 3,139 49.4%
Expenditure 1,525 2,931 92.2%
Operating profit (EBDITA) 576 208 -63.9%
EBDITA margin (%) 27.4% 6.6% 20.8%
Other income 0 6  
Interest 314 324 3.4%
Depreciation 96 100 3.9%
Profit before tax 167 (210)  
Minority Interest - -  
Tax 16 (23) -238.7%
Profit after tax/(loss) 151 (187)  
Net profit margin (%) 7.2% -6.0%  
No. of shares (m)      
Diluted earnings per share (Rs)*      
Price to earnings ratio (x)*      
* 12 month trailing

What has driven performance in 1QFY12?
  • During the quarter, the company's sales have risen by 49.4% YoY. This appears inflated considering a huge quantum of stock additions during the quarter. The company added Rs 1292.4 m worth of stock in 1QFY12 compared to an accumulation of Rs 40.2 m stock value at the end of the corresponding year-ago quarter.

    Consolidated cost break-up
    as a % of net sales 1QFY11 1QFY12 Change in basis points
    Total Cost of goods 64.9% 77.8% 1293.22
    Staff Cost 1.0% 0.7% -34.62
    Other Expenditure 6.7% 14.9% 817.70

  • In FY11, the company was caught in the cyclical downturn in the basmati rice industry which left it saddled with higher priced basmati stocks. As a result the cost of goods sold to sales ratio has swelled to 78% in 1QFY12 from 65% in the year-ago quarter. Moreover, the revaluation loss of Rs 258.3 m arising on the unsold inventory has resulted in the share of other expenditure in sales to double to 14.9%. Consequently, the operating margin constricted to 6.6% in 1QFY12 compared to a margin of 27.4% clocked in the year-ago quarter.

  • Due to a steep erosion of 64% in the operating income, the company was not able to cover interest and depreciation charges and booked a loss of Rs 187 m in 1QFY12. Had it not been for a tax write-back of Rs 23 m, the loss would still be higher to that extent. The net loss amounted to 6% of the overall sales during the quarter.

What to expect?
At a price of Rs 21, the stock is trading at 1.4 times our estimated FY13 earnings.

High raw material costs, stock devaluation loss and huge carrying costs had clipped Lakshmi Energy’s profitability in FY11 and in 1QFY12; the company has slipped into losses. After hitting a rock-bottom, financial performance is expected to gradually improve in the coming quarters on better outlook for the rice industry. Expectation of bumper rice crop translating to low paddy prices, lifting of ban on non-basmati rice exports and weak production outlook for most rice exporting countries is expected to boost rice exports from the country. Therefore going forward, the company’s profitability is expected to improve but the highly leveraged capital structure of the industry keeps the tone cautious and we would advise investors to refrain from taking any fresh positions in the stock.

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