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BILT: Hit by slowing demand - Views on News from Equitymaster
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BILT: Hit by slowing demand
May 25, 2009

Performance summary
  • Topline during 3QFY09 (June ending fiscal) falls by 1% due to the poor performance of its pulp unit at Kamalapuram and Sabah Forest Industries in Malaysia.
  • Operating margins tank by 6.7% due to a substantial rise in raw material costs (as percentage of sales).
  • Poor performance at the operating level and higher interest costs lead to the 76% YoY fall in the bottomline.

Financial performance: A snapshot
(Rs m) 3QFY08 3QFY09 Change 9mFY08 9mFY09 Change
Net sales 6,898 6,859 -0.6% 20,438 21,089 3.2%
Expenditure 5,076 5,510 8.6% 15,066 16,241 7.8%
Operating profit (EBDITA) 1,822 1,349 -26.0% 5,372 4,848 -9.7%
EBDITA margin (%) 26.4% 19.7% 26.3% 23.0%
Interest (net) 368 469 27.4% 1,050 1,296 23.4%
Depreciation 510 549 7.5% 1,537 1,596 3.8%
Profit before tax 944 331 -65.0% 2,785 1,957 -29.7%
Tax 185 164 -11.3% 564 525 -6.9%
Minority interest 21 (12) 28 137 389.2%
Share of profits in associates 7 - 24 16 -35.0%
Profit after tax/(loss) 745 179 -76.0% 2,217 1,311 -40.9%
Net profit margin (%) 10.8% 2.6% 10.8% 6.2%
No. of shares (m) 555.6 555.6
Diluted earnings per share (Rs)* 3.6
Price to earnings ratio (x)* 7.4
(* on a trailing 12-months basis)

What has driven performance in 3QFY09?
  • BILTís revenues fell by 1% YoY during 3QFY09 largely due to the poor performances of both its rayon grade pulp unit and Sabah Forest Industries in Malaysia. Due to the sluggish demand for pulp, a phenomenon witnessed in the second quarter as well, unit Kamalapuram (which manufactures rayon grade pulp) continued to remain shut during the quarter. This unit is expected to commence operations in May 2009. Further, revenues were also impacted due to the subdued performance of Sabah Forest Industries in Malaysia once again due to tepid demand for paper in Malaysia and the maintenance shut down in March. The overall paper division recorded a growth of 14% YoY during the quarter.

    Segmental snapshot
    3QFY08 3QFY09 Change 9mFY08 9mFY09 Change
    Paper 5,201 5,813 11.8% 15,597 17,162 10.0%
    PBIT margin (%) 22.0% 15.0% 22.0% 18.7%
    Paper products & office supplies 566 763 34.7% 1,777 2,255 26.9%
    PBIT margin (%) 17.4% 10.5% 16.6% 10.6%
    Pulp 966 130 -86.5% 2,634 1,329 -49.5%
    PBIT margin (%) 14.4% -82.1% 12.1% -4.7%
    Others 501 238 -52.6% 912 860 -5.6%
    PBIT margin (%) -3.6% -4.0% -4.4% -3.9%
    Total 7,235 6,944 -4.0% 20,919 21,607 3.3%
    PBIT margin (%) 18.9% 12.0% 19.1% 15.5%

  • BILTís operating margins contracted substantially by 6.7% during the quarter, largely due to a considerable rise in raw material costs (as a percentage of sales) from 26.1% in 3QFY08 to 36.6% in 3QFY09. Operating margins also declined on account of the shrinkage in profits of the Kamalapuram unit and Sabah Forest Industries. For the nine month period the performance was a tad better with margins reducing by 3.3%.

  • Led by the 26% YoY drop in operating profits and higher interest costs, BILTís bottomline plunged 76% YoY during the quarter. Even an 11%YoY decline in tax expenses could not do much in terms of arresting the fall in net profits. For the nine month period, net profits recorded a decline of 41% YoY.

What to expect?
At the current price of Rs 27, the stock is trading at a price to earnings multiple of 3.4 times our estimated FY11 earnings. The performance in 9mFY09 has been tepid on account of stagnant demand and maintenance shut downs. Having said that, the companyís performance is expected to improve over the next three years with the new capacities coming on stream, which will provide a fillip to revenues. Infact, capacity expansion at the Bhigwan unit has been completed and commercial production already started in March 2009. In the longer term, the company is also expected to benefit from the Sabah acquisition in the form of lower raw material costs and consequently higher operating margins. Despite near term pressures, we maintain our positive view on the stock from a long term perspective.

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