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K S Oils: Newer markets drive growth - Views on News from Equitymaster
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K S Oils: Newer markets drive growth
May 6, 2009

Performance summary
  • Topline grows by 54% YoY on account of increased penetration in newer markets and strengthening of its market share and brands in existing markets.
  • 53% YoY growth in operating profits is almost in line with growth in topline. This was mainly supported by control over costs of operation.
  • Robust growth percolates down to the bottomline that reports 41% YoY growth for the fiscal ended March 2009. Depreciation charges are on the higher side as the company has been increasing capacity.

Consolidated financial performance snapshot
(Rs m) 4QFY08 4QFY09 Change FY08 FY09 Change
Net sales 6,740 8,874 31.7% 20,443 31,436 53.8%
Expenditure 6,059 7,934 30.9% 18,258 28,093 53.9%
Operating profit (EBITDA) 681 941 38.1% 2,185 3,342 53.0%
EBITDA margin (%) 10.1% 10.6% 10.7% 10.6%
Other income 62 133 114.5% 128 255 99.0%
Interest 116 251 115.9% 375 725 93.4%
Depreciation 34 92 171.7% 123 271 119.9%
Profit before tax/(loss) 593 731 23.2% 1,815 2,602 43.3%
Extraordinary item - - 2 2 -21.1%
Tax 198 262 32.4% 615 910 47.8%
Minority interest (1) 1 -210.0% 2 9 330.0%
Net profit 395 470 19.2% 1,204 1,702 41.4%
Net margin (%) 5.9% 5.3% 5.9% 5.4%
No of shares (m) 315 356
Diluted EPS (Rs)* 4.8
P/E (times) 10.3
*trailing twelve month earnings

What has driven performance in FY09?
  • The 54% YoY growth in topline was backed by the company’s strategy to venture into newer markets to increase penetration and strengthen its market share and brands in the existing markets. The strong consumer demand supported the growth apart from the shift in revenue mix. KS Oils has increased focus on retail pack sales where margins as well as volumes are high.

  • The company’s core business, the oil division that contributes over 95% to the total revenues, reported a robust 52% YoY growth and reported stable PBIT margins at 10%. The company has increased focus on captive power production to support its functions. It has set up wind mills that generate over 35 MW of power. The move apart from improving operational efficiencies by way of reducing power costs has ensured the smooth functioning of plants.

  • During FY09, costs (as percentage of sales) remained flat. While raw material costs (including raw materials consumed and purchase of traded goods) as percentage of sales were lower in FY09, other cost heads increased offsetting the impact of savings in consumption of raw materials.

    Cost break up
    (as a % of sales) 4QFY08 4QFY09 FY08 FY09
    Raw materials consumed 72.7% 76.4% 74.0% 77.0%
    Purchase of traded goods 9.5% 4.7% 8.5% 4.9%
    Staff cost 0.4% 0.8% 0.4% 0.6%
    Other expenditure 7.3% 7.5% 6.4% 6.9%

  • While the EBITDA margins remained almost stable at 10.6% in FY09 (10.7% in FY08), net margins contracted by 0.5%. The same is owing to increased interest costs, higher depreciation and tax outgo. This could be attributed to the fact that the company has outlined huge expansion plans. Increased borrowings to support capex seem to have pressurised margins. The expansion plans also shored up asset replacement costs. The expansion plans will exert pressure on margins till the time the benefit of capex starts flowing in.

  • Apart from the good show at the operating level, the 41% YoY growth in net profits was backed by nearly two-fold growth in other income. Excluding other income, bottomline registered 35% YoY growth.

What to expect?
The company operates in a competitive environment. Inability to sustain brand premium can affect the margins of the company. While we do not foresee that as a major threat as the company’s brands are well established in the existing markets, the possibility of the same cannot be ruled out. The company is likely to witness stiff competition particularly in new markets as it ventures into new geographies with a motive to establish a pan India presence. Apart from venturing into newer markets, to enhance sales the company has chalked out huge expansion plans. The company not only benefits owing to its integrated operations but also has set up wide distribution networks to increase reach.

At the current price of Rs 49, the stock is trading at 7.1 times our estimated FY11 earnings. The company has outperformed our expectations. Considering the company’s strategic moves such as ramping up capacities, integrating operations to ensure smooth functioning while boosting margins, we expect KS Oils to grown in line with the sector growth. We maintain our view on the stock.

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May 22, 2017 (Close)


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