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ICI: The restructuring effect

Feb 27, 2001

ICI India has reported a 41% drop in net profit for the third quarter ended 31st December 2000 to Rs 77 m. Sales declined by 4% during the respective quarter to Rs 2,168 m. The decline in sales is even sharper when we consider the first nine months performance of the company. Sales has dropped to Rs 6,433 m in the first nine months of the current year from Rs 7,024 m in the corresponding period of the previous year.

(Rs m) 3QFY00 3QFY01 Change 9mFY00 9mFY01 Change
Sales 2,267 2,168 -4.4% 7,024 6,433 -8.4%
Other Income 11 11 1.9% 50 37 -24.6%
Expenditure 2,005 1,994 -0.5% 6,229 5,989 -3.8%
Operating Profit (EBDIT) 262 174 -33.5% 795 444 -44.1%
Operating Profit Margin (%) 11.5% 8.0% 11.3% 6.9%
Interest 30 7 -78.3% 139 26 -81.6%
Depreciation 57 59 3.7% 182 171 -6.2%
Profit before Tax 185 119 -35.7% 524 285 -45.5%
Other Adjustments (55) (9) -83.6% 121 81 -33.3%
Tax - 34 135 85 -37.0%
Profit after Tax/(Loss) 130 77 -41.2% 510 281 -44.9%
Net profit margin (%) 5.7% 3.5% 7.3% 4.4%
No. of Shares (eoy) (m) 40.9 40.9 40.9 40.9
Diluted number of shares 40.9 40.9 40.9 40.9
Earnings per share* 12.7 7.5 16.6 9.2

However, the company sold its explosives division to Indian Explosives Limited (explosives contributed to 7% of FY99 turnover). Hence, the results of the current year are not comparable. Operating profit has dropped sharply in 3QFY01 by 34% to Rs 1,994 m. The reason could be attributed to the sharp rise in titanium dioxide prices (per tonne price has gone up to US$ 1,950 from US$ 1,600 last year) primarily led by higher crude prices. Besides, the company's other businesses like rubber chemicals and textile auxillaries are also witnessing subdued demand in the current year.

Interest costs have come down sharply by 78% in 3QFY01 to Rs 7 m, which is led by debt restructuring and minimizing inventory levels (in FY00, total debt of the company stood at Rs 473 m at an average cost of 17% per annum).

Under the decade old restructuring process, the company is in the process of selling off its polyurethanes and motors & industrial paints business to the joint venture with Berger Paints (polyurethane and industrial paint businesses contributed to 12% and 4% of FY99 turnover respectively). This, we believe is crucial for a consistent growth in profits in coming years. Since the company has a diversified product portfolio (includes pharmaceuticals, textile auxillaries, polyurethanes and rubber chemicals), some of the these divisions have been a drag on the company's margins.

The stock is currently trading at Rs 75 at a P/E multiple of 8.1x the annualised nine months earnings. On the annualised sales of Rs 8,578 m, market capitalisation to sales works out to 0.3 times (market capitalisation is Rs 3,065 m).

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