BILT: Higher tax restricts profit growth

BILT has announced its 3QFY11 results. The company has reported a 12.5% YoY growth in sales and 11% YoY increase in net profits. Here is our analysis of the results.

Performance summary

• Topline during 3QFY11 (June ending fiscal) grows by a 12.5% YoY largely led by growth in its pulp business.
• Operating margins saw a marginal increase of 0.3% on account of reduction in staff costs by nearly 0.8% (as percentage of sales).
• The company’s interest expense rose by only 5% despite the high interest rate scenario. This helped the company post a strong 32% YoY growth in PBT. However, higher tax expenses restricted the net profit growth to 11% YoY.

Financial performance: A snapshot

(Rs m)	3QFY10	3QFY11	Change	9mFY10	9mFY11	Change
Net sales	10388	11692	12.5%	27468	33229	21.0%
Expenditure	8417	9438	12.1%	21668	26705	23.2%
Operating profit (EBDITA)	1971	2253	14.3%	5800	6524	12.5%
EBDITA margin (%)	19.0%	19.3%		21.1%	19.6%
Interest (net)	639	667	4.5%	1686	2019	19.8%
Depreciation	770	843	9.5%	2232	2451	9.8%
Profit before tax	563	743	32.1%	1882	2054	9.2%
Tax	12	137	1013.0%	308	356	15.6%
Minority interest	108	115	6.5%	257	318	23.5%
Profit after tax/(loss)	443	492	11.0%	1317	1381	4.8%
Net profit margin (%)	4.3%	4.2%		4.8%	4.2%
No. of shares (m)	655.6	655.6
Diluted earnings per share (Rs)*		3.10
Price to earnings ratio (x)*		11.83

What has driven performance in 3QFY11?

• BILT's revenues grew by 12.5% YoY during 3QFY11 led by growth in revenue from its pulp business (up 35.5%). Paper products saw a decline of 2.8% YoY in revenues while revenues from other segments fell by nearly 19%.
  Segmental snapshot

  	3QFY10	3QFY11	Change	9mFY10	9mFY11	Change
  Paper	8,133	9,148	12.5%	21,413	25,871	20.8%
  PBIT margin (%)	12.2%	9.6%		15.4%	11.2%
  Paper products & office supplies	1040.7	1,011	-2.8%	2830.8	3270.8	15.5%
  PBIT margin (%)	6.0%	7.0%		7.6%	7.0%
  Pulp	963	1305	35.5%	2550	3427	34.4%
  PBIT margin (%)	25.2%	37.7%		13.7%	30.6%
  Others	264	213	-19.3%	846	661	-21.8%
  PBIT margin (%)	-4.0%	-4.0%		-4.0%	-4.0%
  Total	10,401	11,677	12.3%	27,639	33,230	20.2%
  PBIT margin (%)	12.4%	12.3%		13.8%	12.5%

• The operating margins saw a marginal rise of 0.3%. This was largely due to a fall in raw materials cost (as a percentage of sales) from 37.5% in 3QFY10 to 36.6% in 3QFY11 and staff costs from 6.4% of sales in 3QFY1o to 5.6% this quarter. Power and stores and spare consumption, however, pared some of the gains as these witnessed a rise during the quarter.

• The company's interest expense rose by only 5% despite the high interest rate scenario. The rise in depreciation charges were also not much. These factors coupled with the growth in operating profits led to the robust 32% YoY growth in PBT. Having said that, growth in net profits was restricted to 11% YoY during the quarter due to higher tax expenses.

What we expect?

At the current price of Rs 36.7, the stock is trading at a price to earnings multiple of 11.8 times FY11 earnings. We are in the process of revising our estimates for the company and will come out with a view soon.