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EID Parry: Signs of recovery? - Views on News from Equitymaster

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EID Parry: Signs of recovery?

Apr 25, 2008

Performance summary
  • The topline for the whole year on a standalone basis grows by 17% YoY. For 4QFY08, it has grown by 163% YoY.

  • On a standalone basis, the operating margins jump to 10.8% for 4QFY08. However, for the year it is still in losses.

  • On a consolidated basis, the topline grows by 65% YoY for FY08. The profits are up 27% YoY excluding the extraordinary item in FY07.

  • The Board of Directors approve sale of 47% shareholding in Parryware Roca Private Limited, a 50:50 joint venture with Roca Sanitario S.A. (Roca), to Roca Bathroom Investments S.L. for Euro 111 m.

Standalone picture
Rs(m) 4QFY07 4QFY08 (%) Change FY07 FY08 (%) Change
Gross sales 769 2,024 163.2% 5,832 6,798 16.5%
Excise duty 44 66 49.7% 315 289 -8.3%
Net sales 725 1,958 170.1% 5,517 6,509 18.0%
Expenditure 722 1,746 141.9% 5,061 6,815 34.7%
Operating profit (EBDITA) 3 212 7203.4% 456 (306)  
EBDITA margin (%) 0.4% 10.8%   8.3% -4.7%  
Other income 39 94 139.6% 373 496 32.8%
Interest -11 37   -21 135  
Depreciation 88 114 30.3% 329 440 34.0%
Profit before tax (35) 155   522 (385)  
Extraordinary item - -   1,181 -  
Tax 73 -224   429 -219 -151.0%
Profit after tax/(loss) (107) 379   1,274 (166)  
Net profit margin (%) -14.8% 19.4%   23.1% -2.6%  
No. of shares (m) 89.3 89.3   89.3 89.3  
Diluted earnings per share (Rs)*         -  
Price to earnings ratio (x)*         -  
* 12 month trailing earnings            

What has driven performance in FY08?
  • The topline for the whole year on a standalone basis has grown by 17% YoY. However the results for the previous year include operations of the nutraceuticals division for 7 months from 1st September 2006 and hence are strictly not comparable. While the sugar division grew by 10% YoY, bioproducts and power division performed strongly. The bio pesticides division of the company has emerged as a global leader in the Neem based bio-pesticide business. Though overall the performance of the sugar division was subdued, in the last quarter, signs of recovery have been visible. The segment has grown by 315% YoY in 4QFY08. With the crushing season having started and lower production expected, the sugar prices have witnessed rising trends recently. This has led to the better performance.

  • On a standalone basis, the operating margins have jumped 10.8% for 4QFY08. However, for the year, the company is still in losses. While higher raw material expenses continued to haunt the company, staff and other expenses were on the lower side. In FY07, the sugar sector was facing its worst period. Hence, the expenses constituted a larger part of sales. However, with the sector witnessing some improvement in 3QFY08 and 4QFY08, expenses (as percentage of sales) have normalised. On the segmental PBIT front, while the sugar division’s margins fell, by products provided the saving grace.

    Consolidated Segment-wise performance
    (Rs m) 4QFY07 4QFY08 (%) Change FY07 FY08 (%) Change
    Sugar 392 1,627 315.4% 5,066 5,585 10.2%
    PBIT margin (%) -42.1% 0.2%   2.3% -17.2%  
    % of revenue 7.1% 19.3%   16.9% 11.8%  
    Bio products 280 300 7.2% 392 611 55.8%
    PBIT margin (%) 10.2% 24.1%   13.5% 12.0%  
    % of revenue 5.1% 3.6%   1.3% 1.3%  
    Farm Inputs 4,476 6,091 36.1% 21,178 38,354 81.1%
    PBIT margin (%) 4.4% 3.7%   8.2% 10.3%  
    % of revenue 81.7% 72.3%   70.7% 81.0%  
    Cogenration 214 312 46.1% 589 992 68.4%
    PBIT margin (%) 45.5% 42.8%   32.7% 36.5%  
    % of revenue 3.9% 3.7%   2.0% 2.1%  
    Others 118 94 -20.6% 2,748 1,829 -33.4%
    % of revenue 2.2% 1.1%   9.2% 3.9%  
    Total revenues 5,479 8,423 53.7% 29,974 47,371 58.0%

  • The company on a standalone basis continued to face losses during the year. Losses at the operating level, higher depreciation and interest costs affected the PAT performance. However, for 4QFY08, the company earned profits due to better margins and higher other income.

  • On a consolidated basis, the topline grew by 65% YoY for FY08. The margins fell by 0.8% on account of higher raw material costs. The profits were up 27% YoY excluding the extraordinary item in FY07. Higher other income and lower tax outgo aided the performance.

What to expect?
The full year performance has been bad on the standalone front. With the sugar sector facing the downturn of the cycle last year, the performance was affected. However, in the last quarter, the sugar industry has been on an upturn given the lower production and depleting inventory. Global sugar prices have moved up by 30% in the past six months. Domestic sugar production may also not be as abundant as previously estimated. It is estimated to be around 26 MT, as compared to the earlier estimates of 31 to 32 MT. Lower production is mainly on account of expected fall in sugarcane acreage and lower yield due to huge cane arrears of the last season. EID Parry’s last quarter performance, where it has witnessed improvement in the margin and bottomline, is an encouraging sign. EID is increasing its total sugar crushing capacity to 19,000 TCD by the end of the year. However, with elections likely to be held in the near future, the decision on cane prices would hold the key for the financial performance of sugar companies going forward.

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