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Lakshmi Energy: 'Power'ing ahead - Views on News from Equitymaster

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Lakshmi Energy: 'Power'ing ahead

May 8, 2009

Performance summary
  • Consolidated topline declines by 57% YoY during the second quarter on account of lower offtake and export ban.
  • Consolidated operating margins improve by 21% YoY on account of lower raw material costs and strong margins reported by the power division.
  • Net profit drops by 38% YoY due to lower sales and higher depreciation.


Consolidated picture
(Rs m) 2QFY08 2QFY09 (%) Change 1HFY08 1HFY09 (%) Change
Net sales 3,515 1,513 -57.0% 5,982 3,280 -45.2%
Expenditure 2,912 939 -67.7% 4,831 2,256 -53.3%
Operating profit (EBDITA) 603 574 -4.9% 1,150 1,024 -11.0%
EBDITA margin (%) 17.2% 37.9%   19.2% 31.2%  
Other income 11 8 -29.9% 14 10 -27.4%
Interest 129 173 34.4% 240 301 25.3%
Depreciation 38 134 254.4% 96 195 103.0%
Profit before tax 448 275 -38.6% 828 538 -35.0%
Tax 150 92 -39.1% 277 180 -35.2%
Profit after tax/(loss) 297 183 -38.4% 550 358 -35.0%
Net profit margin (%) 8.5% 12.1%   9.2% 10.9%  
No. of shares (m) 60.0 63.2   60.0 63.2  
Diluted earnings per share (Rs)*         22.5  
Price to earnings ratio (x)*         3.2  
* 12 month trailing

What has driven performance in 2QFY09?
  • Lakshmi Energy and Foods (LEAF) witnessed a topline decline of 57% YoY during 2QFY09 due to continued ban on exports of non-basmati by the government coupled with lower off take of rice in Punjab by Food Corporation of India (FCI) due to storage problems. Bumper paddy production in Punjab has created an oversupply situation, thereby leading to severe storage problems. Standalone sales were lower by 51% YoY and 41% YoY during 2QFY09 and 1HFY09 respectively. The drop, however, has been capped on account of the power segment, which was not operational last year. It contributed 23% to the topline during the quarter.

    Consolidated cost break-up
    as a % of net sales 2QFY08 2QFY09 1HFY08 1HFY09
    Total Cost of goods 80.1% 54.8% 78.7% 62.3%
    Staff Cost 0.4% 0.7% 0.4% 0.9%
    Other Expenditure 2.4% 6.5% 1.6% 5.6%

  • The company witnessed operating margin jump of nearly 21% YoY and 12% YoY on a consolidated basis for both the periods under consideration inspite of decline in sales. Even on the domestic front, improvement in margins was seen. The main driver was the power segment, which earned superior EBIT margins of more than 85%. Further, lower input costs (on account of inventories) also aided the margin expansion.

  • On account of decline in operating profits and other income coupled with higher depreciation charges, the consolidated net profits saw a drop of 38% YoY during 2QFY09 and 35% YoY during 1HFY09. Even on the domestic front, the decline was at similar levels. The company has undertaken expansion plans, leading to the increase in depreciation charges during the quarter.

What to expect?
At the current price of Rs 73, the stock is trading at a price to earnings multiple of 3.2 times its 12 month trailing earnings. The integrated model once again came to the rescue of the company. The 30 MW power plant (two units of 15 MW capacity each), are now fully operational which would further aid its margins. The company is expanding the capacity to 60 MW in the next 2 years. It is also hoping that the FCI offtake begins post elections. While the management expects the topline growth during the fiscal to remain flat, the margins are likely to improve.

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