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Wartsila reports staid results

Feb 27, 2001

Wartsila India, the diesel engine giant, has reported a net profit of Rs 42 m in the quarter ended December 31, 2000. This is up 14% over 4QFY00. However, its net sales is only up 2% during the period.

(Rs m) FY00 FY01 Change (%) 4QFY00 4QFY01 Change (%)
Net Sales 3,139 3,402 8.4% 930 951 2.3%
Other Income 140 18 -87.1% 3 5 66.7%
Expenditure 2,976 3,099 4.1% 846 854 0.9%
Operating Profit 163 303 85.9% 84 100 19.0%
Operating Profit Margin (%) 5.2% 8.9%   9.0% 10.5%  
Interest 23 10 -56.5% 7 2 -71.4%
Depreciation 28 31 10.7% 9 8 -11.1%
Profit before Tax 252 280 11.1% 71 92 29.6%
Tax 95 115 21.1% 34 48 41.2%
Less: Prior Period Items   3     2  
Net Profit 157 162 3.2% 37 42 13.5%
Net profit margin (%) 5.0% 4.8%   4.0% 4.4%  
No. of Shares (eoy) (m) 12.03 12.03   12.03 12.03  
Earnings per share* 13.1 13.5   12.3 14.0  
*(annualised)            
Current P/e ratio   9.0        

Wartsila is India's largest manufacturer and supplier of 1 MW - 6 MW DG sets which have the advantage of being able to adapt its engines to a variety of fuels. It has a market share of over 65% of the total genset production in India (> 1 MW range). DG sets of smaller size can be put together to make one large power generating unit.

The company's performance has not been very consistent in FY01. For the first half of the year, the company's bottomline declined by a significant 43% YoY. But the company bounced back in the September ended 3QFY01 and recorded a huge 204% jump in bottomline.

The company finally finished FY01 with a marginal 3% growth in bottomline and an 8% growth in topline. A huge decline in its other income (down 87%) was largely responsible for its staid bottomline growth. On an operating level, the company improved its operating margins by 370 basis points. Added to that, the company's debt servicing costs (interest costs) came down by 57%. These are signs that the company is finally cleaning up its act and has the potential to improve its performance in FY02.

Wartsila's order book as on January 2001 for power plants stood at Rs 1,178 m as against Rs 1,515 m during January, 2000. The company has recommended a dividend of 40% for the year ended December 31, 2000.

Given the government's resolve to push power sector reforms in India, the company is likely to benefit with increased investment's in the power sector. The stock currently trades at a P/e multiple of 9 times in FY01 annual earnings. This is very low compared to its peers in the industry. ABB for example, quotes at a P/e of 24 times and Siemens quotes at 16 times its annualised 1QFY01 earnings. Investors have given it a lower rating given its uneven track record. But if the company manages to maintain its operating efficiencies, then the stock may see a re-rating.

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