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Indo Rama: Sets house in order - Views on News from Equitymaster
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  • Apr 17, 2002

    Indo Rama: Sets house in order

    Indo Rama Synthetics (India) Ltd. has reported a much improved performance for the fiscal year ended 2002. Over the past two years the company has managed to turnaround fortunes. Performance in FY02 was largely driven by lower feedstock costs, improved efficiency and financial re-structuring.

    (Rs m) 4QFY01 4QFY02 Change FY01 FY02 Change
    Net Sales 4,788 4,076 -14.9% 17,495 16,764 -4.2%
    Other Income 16 56 256.3% 109 132 21.6%
    Expenditure 4,114 3,291 -20.0% 14,684 13,588 -7.5%
    Operating Profit (EBDIT) 674 786 16.6% 2,811 3,177 13.0%
    Operating Profit Margin (%) 14.1% 19.3%   16.1% 18.9%  
    Interest 349 174 -50.2% 1,608 1,071 -33.4%
    Depreciation 253 269 6.4% 1,051 1,076 2.4%
    Profit before Tax 88 399 355.8% 261 1,162 346.0%
    Extraordinary items 73 358 389.6% 73 494 575.4%
    Tax - 31   - 255  
    Profit after Tax/(Loss) 14 10 -31.9% 187 413 120.3%
    Net profit margin (%) 0.3% 0.2%   1.1% 2.5%  
    No. of Shares (eoy) 156 166   156 166  
    Diluted earnings per share* 0.3 0.2   1.1 2.5  
    P/E Ratio   60.6     5.8  

    Turnover of the company has experienced volatility in the past four quarters ended March '02. Having recovered in the third quarter from a sharp slide in 2Q, sales once again have dipped in 4QFY02. The cyclicality of the industry seems to have increased in the past few years. The sector had recovered from the Asian meltdown by FY00 only to be hit by the global slowdown in FY02. During this period, the industry has also been faced with volatile feedstock prices, which have eaten into margins. That said, the global economic upturn and rise in feedstock costs has resulted in improved polyester prices during the fourth quarter. However, realisations continue to rule below last year's levels by an estimated 15%. Sale volume for FY02 have increased by 6%, which indicates an erosion in realisations by an estimated 10%.

    Despite lower sales, operating profits registered respectable growth backed largely by improved operating margins. The OPM for both the periods has improved with expenses falling at a faster clip compared to sales. The global economic slowdown cooled oil prices, which has reflected in feedstock costs. Raw material prices are lower by an estimated 14%. Gains have also been extracted from higher operating efficiencies. The company is emphasizing on I.T to further streamline business processes, which seem to have facilitated reduction in marketing and logistic expenses. Indo Rama has roped in Accenture for better deployment of I.T resources. The efforts could result in improved margins going forward.

    Interest expense has declined in all the quarters of FY02. The company has undertaken capital restructuring to reduce the financial leverage. During the concerned period, Indo Rama re-paid loans amounting to Rs 1.9 bn and has re-financed high cost debt with low cost borrowings. The company has also appointed Ernst & Young (E&Y) as external financial advisors to help develop strategic initiatives.

    At Rs 14 Indo Rama is trading on a multiple of 5.8x FY02 earnings, which has been improving over the past fiscal. The company seems to be taking several initiatives to improve operating & financial performance. Also, the cyclical upturn in the industry could add to the turn in business fortunes.



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