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Wartsila: Re-rating around the corner?

Apr 17, 2001

Wartsila India is set to declare its 1QFY02 results in the next three days. In anticipation the stock zoomed 8% yesterday. Let's take a look at Wartsila's past and see what the future holds. 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). Diesel Gensets (DG) 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.

  FY00 FY01 Change (%)
Net Sales 3,139 3,402 8.4%
Other Income 140 18 -87.1%
Expenditure 2,976 3,099 4.1%
Operating Profit 163 303 85.9%
Operating Profit Margin (%) 5.2% 8.9%  
Interest 23 10 -56.5%
Depreciation 28 31 10.7%
Profit before Tax 252 280 11.1%
Tax 95 115 21.1%
Less: Prior Period Items   3  
Net Profit 157 162 3.2%
Net profit margin (%) 5.0% 4.8%  
No. of Shares (eoy) (m) 12.0 12.0  
Earnings per share* 13.1 13.5  
*(annualised)      
Current P/e ratio   5.6  

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. Given the government's resolve to push power sector reforms in India, the company is likely to benefit with increased investments in the power sector.

At Rs 76 the stock currently trades at a P/e multiple of 5.6 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 17 times FY01 earnings and Siemens quotes at 12 times its annualised 1QFY02 earnings. Wartsila has been historically given a lower rating because of its uneven track record and it is unlikely to change anytime in the near future.

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