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Ess Dee Aluminium: Margins slide on ramp-up woes - Views on News from Equitymaster

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Ess Dee Aluminium: Margins slide on ramp-up woes

Mar 6, 2012

Ess Dee Aluminium Limited has announced its third quarter results for financial year 2011-2012 (3QFY12). The company has reported a 15.5% YoY and 56% YoY fall in sales and net profit respectively. Here is our analysis of the results.

Performance summary
  • Consolidated sales for 3QFY12 slumped by 15.5% YoY. The sales during 9mFY12 were down by 1.9% YOY.
  • Operating (EBITDA) margin eroded 560 basis points on the back of steep rise in employee costs and higher raw material and other expenditure, as a proportion of sales. EBIDTA margin for 9mFY12 was down by 290 basis points.
  • Net profit of the company slumped by 56% YoY due to lower operating income further clipped by a sharp rise in depreciation outgo and higher interest expense. For 9mFY12, net profit was down by 46.8% YoY.

Consolidated financial picture
(Rs m) 3QFY11 3QFY12 Change 9mFY11 9mFY12 Change
Net sales 1,869 1,579 -15.5% 5021.8 4928.31 -1.9%
Expenditure 1,330 1,212 -8.9% 3607.13 3726 3.3%
Operating profit 539 367 -31.9% 1,415 1,202 -15.0%
Operating margins (%) 28.9% 23.3%   28.2% 24.4%  
Other Income 45 39 -11.9% 109.34 134.83 23.3%
Interest (net) 61 92 50.0% 175.09 247.6 41.4%
Depreciation 50 89 80.0% 145.31 266.42 83.3%
Reversal of impairment of assets - -   103    
Profit before Tax 473 226 -52.3% 1,307 823 -37.0%
Extraordinary item - -        
Tax 93 58 -37.2% 252.02 261.57 3.8%
Minority interest - -        
Loss after Tax on account of merger - -        
Profit after Tax/(Loss) 380 167 -56.0% 1,055 562 -46.8%
Net profit margin (%) 20.4% 10.6%   21.0% 11.4%  
No. of Shares (m)         32  
Diluted earnings per share (Rs)*         21.33  
Price to earnings ratio (x)*         7.1  
* trailing twelve month earnings

What has driven performance in 3QFY12?
  • Ess Dee Aluminium's topline continued to decline for the second consecutive quarter in FY12. The company's sales were down by 15.5% YOY on the back of sluggish demand from pharma companies.

    Cost break-up...
    Cost break-up... 3QFY11 3QFY12 Change in basis points
    As % of net sales      
    Total cost of goods sold 64.2% 64.8% 58.79
    Employee costs 3.6% 5.2% 156.73
    Other expenditure 3.3% 6.7% 344.54

  • Operating profitability continued to witness compression on account of higher employee costs and other expenditure. As a percentage of sales, each of the employee costs and other expenditure were up by 157 basis points and 345 basis points respectively. Even the cost of goods sold to sales ratio was up by 59 basis points as utilisation of caster billet plant continued to remain low. Resultantly, operating margin constricted by 560 basis points to 23.3% during the quarter.

  • Earnings slumped by 56% on 32% erosion in operating income and a steep jump in interest and depreciation expenses. Higher working capital loans led to a 50% rise in interest, whereas the depreciation outgo increased by 80% during the quarter.

What to expect?
At a price of Rs 151 the stock is trading at 2.4 times our estimated FY14 earnings.

As there is no clarity regarding stabilisation in the caster billet plant and consequent improvement in capacity utilisation, the company's operating performance is likely to remain depressed in 4QFY12. But with the long term potential remaining bright, we would advise investors to keep holding on to their positions and maintain a close watch over the next couple of quarters. However, we would advice against taking any further positions.

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Mar 26, 2019 (Close)


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