Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.

Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Indian Rayon: Mixed performance - Views on News from Equitymaster
  • E-MAIL
  • A  A  A
  • May 7, 2002

    Indian Rayon: Mixed performance

    Indian Rayon, the diversified major under the Aditya Birla Group, has posted a 37% drop in net profit for the full year ended March 31, 2002. Sales and margins also declined in the same period on account of strike at its Veraval plant for 67 days. The slowdown in the economy, both internationally and domestically, also seems to have added to the woes of the company.

    (Rs m) FY01 FY02 Change
    Net sales 14,162 14,082 -0.6%
    Other Income 130 95 -26.4%
    Expenditure 12,122 12,171 0.4%
    Operating Profit (EBDIT) 2,040 1,911 -6.3%
    Operating Profit Margin (%) 14.4% 13.6%  
    Interest 618 455 -26.3%
    Depreciation 731 735 0.6%
    Profit before Tax 821 815 -0.7%
    Royalty to subsidiary 79 88 11.1%
    Extraordinary items - 13  
    Tax 57 306 441.8%
    Profit after Tax/(Loss) 685 435 -36.6%
    Net profit margin (%) 4.8% 3.1%  
    No. of Shares (m) 59.9 59.9  
    Diluted Earnings per share 11.4 7.3  
    P/E Ratio (x)   15.7  

    One of the fastest growing businesses viz. garments grew at a slower pace with increasing pressure on realisations. This division recorded a turnover of Rs 3,500 m, up 7%. Exports however, increased sharply by 43% to Rs 500 m. The pricing pressure is reflected in the fact that volume of shirts and trousers rose by 14%. Following slowdown in consumer spending, the management has said that it was forced to offer discounts and freebies affecting operating profits of this division. Though operating margins for FY02 for garments division increased by 30 basis points, in 4QFY02 margins stood at 7% compared to 17% in the corresponding period previous year. As far as the outlook for this business is concerned, the company expects this segment to grow by 15% in the long run. But in the short-term, sagging consumer confidence and poor spending by consumers is expected to have a negative impact on the company.

    The primary reason for the sharp fall in profits for Indian Rayon is the labour strike in its rayon division. While VFY production declined by 21% to 12,253 MT for FY02, sales fell by 16% in the same period. Realisations grew by 8% due to reduced supply in the markets. Consequent to the closure of capacities in the international markets, the company is expected to benefit from higher exports in the coming years. Barring carbon black division, which posted a 11% rise in sales in FY02, performance of other businesses like textiles and insulators is lacklustre due to unfavorable macro-environment. Carbon black division has performed very well in FY02 with volumes increasing by 34%. Despite the slowdown in the tyre industry, the main user segment, Indian Rayon has managed to increase realisation by 7% on the back of 18% growth in export volumes.

    Division-wise sales performance...
    (Rs m) FY01 FY02 Change
    Garments 3,255 3,499 7.5%
    VFY 2,635 2,322 -11.9%
    Carbon black 2,543 2,805 10.3%
    Insulators 1,836 1,970 7.3%
    Textiles 3,410 3,066 -10.1%
    Others 482 420 -12.9%
    Total 14,161 14,082 -0.6%

    Operating margins for its carbon black division has increased from 17% in FY01 to 23% in FY02 thus preventing the company's margins from a sharp fall. The company has offered voluntary retirement scheme (VRS) to its employees at its textile division in Rishra. The entire cost of VRS i.e. Rs 76 m has been fully provided in the current fiscal itself. However, the impact was negated by surplus generated through disposal of remaining assets to the tune of Rs 89 m. After this adjustment extraordinary item stands at Rs 13 m for FY02. Interest costs is also lower by 26%. But higher provisioning towards deferred taxation had a negative impact on net profits of the company.

    The stock currently trades at Rs 114 implying a P/E multiple of 15.7x FY02 earnings. The company has diversified into few unrelated areas like insurance and software in FY02, which has been one of the biggest cause of concern for investors (investment in insurance and software is to the tune of Rs 2 bn). The management has said that the company is not planning to diversify any further in the future.



    Equitymaster requests your view! Post a comment on "Indian Rayon: Mixed performance". Click here!


    More Views on News

    Sorry! There are no related views on news for this company/sector.

    Most Popular

    Demonetisation Barely Made Any Difference to Tax Collections(Vivek Kaul's Diary)

    Aug 7, 2017

    The data tells us quite a different story from the one the government is trying to project.

    A 'Backdoor' to Multibaggers: It's Like Investing in Asian Paints Ten Years Ago(The 5 Minute Wrapup)

    Aug 10, 2017

    Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.

    Should You Invest In Bharat-22 ETF? Know Here...(Outside View)

    Aug 8, 2017

    Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    7 Financial Gifts For Your Sister This Raksha Bandhan(Outside View)

    Aug 7, 2017

    Raksha Bandhan signifies the brother-sister bond. Here are 7 thoughtful financial gifts for sisters...

    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms


    Jul 4, 2017 (Close)


    • Track your investment in ADITYA BIRLA NUVO with Equitymaster's Portfolio Tracker. Set live price alerts, get research alerts and more. Get access now...
    • Add To MyStocks



    Detailed Financial Information With Charts