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.
Operating Profit (EBDIT)
Operating Profit Margin (%)
Profit before Tax
Royalty to subsidiary
Profit after Tax/(Loss)
Net profit margin (%)
No. of Shares (m)
Diluted Earnings per share
P/E Ratio (x)
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...
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.
More Views on News
Sorry! There are no related views on news for this company/sector.
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: email@example.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407