Lakshmi Energy.: Other expenditure drags profits - Views on News from Equitymaster

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Lakshmi Energy.: Other expenditure drags profits

May 16, 2011

Lakshmi Energy and Foods Limited has announced its second quarter results for financial year 2010-2011 (2QFY11). The company has reported a 0.9% YoY and 51.4% fall in sales and net profit. Here is our analysis of the results.

Performance summary
  • Consolidated top-line fell by 1% during 2QFY11.
  • Consolidated operating (EBITDA) margins fell by 2.9% due to sharp increase in other expenditure.
  • Consolidated net profit fell by 51.4% YoY as a result of fall in operating income and a sharp jump in interest costs.
  • For 1HFY11, the company's consolidated profits fell by 40% YoY on the back of a 1% growth in topline.

Consolidated picture
(Rs m) 2QFY10 2QFY11 Change 1HFY10 1HFY11 Change
Net sales 2,525 2,501 -0.9% 4,551 4,603 1.1%
Expenditure 2,009 2,061 2.6% 3,573 3,584 0.3%
Operating profit (EBDITA) 517 440 -14.8% 978 1,018 4.2%
EBDITA margin (%) 20.5% 17.6%   21.5% 22.1%  
Other income 1 3   1 4  
Interest 176 244 38.1% 317 557 75.8%
Depreciation 90 96 7.3% 179 192 7.7%
Profit before tax 251 103 -58.9% 483 273 -43.6%
Minority Interest - -   - -  
Tax 20    (9) -144.7% 44 7 -83.2%
Profit after tax/(loss) 231 112 -51.4% 439 265 -39.6%
Net profit margin (%) 9.1% 4.5%   9.6% 5.8%  
No. of shares (m) 63 63   63 63  
Diluted earnings per share (Rs)*         10.6  
Price to earnings ratio (x)*         4.2  
* 12 month trailing

What has driven performance in 2QFY11?
  • Sales fell during the quarter in spite of a 10% YoY increase in agri business. This is because the company's energy business was not operational for the quarter.

    Consolidated cost break-up
      2QFY10 2QFY11 1HFY10 1HFY11
    Agri based business 20.7% 17.8% 21.3% 22.3%
    Energy 31.3% 0.0% 29.4% 0.0%

  • Operating income increased by 15% YoY. This is a result of a sharp increase in other expenditure. Other expenditure increased by 89% YoY during the quarter. Operating income would have been lower but for a fall in raw material costs and staff costs. While raw material costs fell by 2% YoY, staff costs came in lower by 8% YoY. On a segmental basis, operating income of agri-business fell by 5% YoY.

  • Net profit of the company fell by 51.4% YoY. This was the result of fall in operating income and a sharp increase in interest expense. Interest expense increased by 38% YoY during the quarter.

What we expect?
At a price of Rs 44, the stock is trading at 2.2 times our estimated FY13 earnings. The company has recently taken the initiative to increase its presence in the retail market through basmati rice. For this the company has taken on addition debt to fund its inventory. The company believes that the profitability of this venture would be much higher than that of its core business (trading with the FCI). We believe the next 2/3 quarter will be crucial for the company to make a success of its new initiative.

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