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Indian Rayon buy-back at Rs 95 - Views on News from Equitymaster
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  • Apr 26, 2001

    Indian Rayon buy-back at Rs 95

    Indian Rayon has recorded a 32% growth in turnover to Rs 14,162 m for FY01 as compared with Rs 10,721 m in FY00. It has also posted a net profit of Rs 685 m during the period as compared with a net loss of Rs 2,412 m in FY00. But the loss last year was primarily on account of loss incurred in the sale of its Seawater Magnesia plant in 4QFY00.

    (Rs m) 4QFY00 4QFY01 Change FY00 FY01 Change
    Sales 3,175 3,531 11.2% 10,721 14,162 32.1%
    Other Income 157 103 -34.6% 522 317 -39.2%
    Expenditure 2,709 3,007 11.0% 9,185 12,177 32.6%
    Operating Profit (EBDIT) 466 524 12.6% 1,536 1,985 29.2%
    Operating Profit Margin (%) 14.7% 14.9%   14.3% 14.0%  
    Interest 218 173 -20.5% 743 747 0.5%
    Depreciation 181 191 5.6% 725 731 0.8%
    Profit before Tax 224 263 17.5% 590 824 39.8%
    Extraordinary items (2,993) (18)   (3,002) (83)  
    Tax - 21   - 57  
    Profit after Tax/(Loss) (2,769) 224 -108.1% (2,412) 685 -128.4%
    Net profit margin (%) -87.2% 6.4%   -22.5% 4.8%  
    No. of Shares (eoy) (m) 59.9 59.9   59.9 59.9  
    Diluted number of shares 59.9 59.9   59.9 59.9  
    Earnings per share (Rs)       (40.3) 11.4  

    The company's performance in the fourth quarter is even more impressive. While sales grew by 11%, operating profit has gone up by 13% to Rs 524 m backed by a 20 basis points increase in operating margins to 14.9%. Given the mature nature of the Viscose Filament Yarn (VFY) business and declining demand for its insulators and carbon black divisions, this is a creditable performance. Interestingly, average realisations per tonne of VFY have been on the rise from 2QFY01, which is vindicated by the fact that realisations have increased from Rs 143 per tonne in 1QFY01 to Rs 153 per tonne in 4QFY01, a increase of 7%. For the last two years, average realisation had been on the decline.

    Other income for FY01 has fallen by 39% to Rs 317 m as the company has invested surplus money in its insurance and the expansion of the company's retail outlets. Interest costs in the fourth quarter have declined sharply by 21% to Rs 173 m since the company has repaid majority of the short term funds raised for paying the buy-out of Madura Garment's acquisition.

    The company has proposed to buy back 15% of its outstanding equity at a price not exceeding Rs 95 per share. This is a 36% premium to the one year average price of Rs 69.6 per share. But as this is just a 12% premium to the current price of Rs 85 per share, it is unlikely that this buy back would receive a fair response from the investors. The promoters stake in the company currently is 26.65%.

    At Rs 85 the stock is currently trading at a P/E multiple of 7.4x the FY01 earnings. On sales of Rs 14,162 m, market capitalisation to sales works out to 0.3 times (market capitalisation is Rs 5,091 m).



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