Impressive performance by ITW Signode in FY00 - Views on News from Equitymaster

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Impressive performance by ITW Signode in FY00

May 26, 2000

One of India's largest industrial packaging solutions company, ITW Signode India Ltd. is back in the black with a Rs 146 m net profit in FY2000. The company had posted a loss of Rs 264 m in FY99.

(Rs m) FY1999 FY2000 Change
Sales 1,706 1,838 7.7%
Other Income 20 44 120.0%
Expenditure 1,874 1,645 -12.2%
Operating Profit (EBDIT) (168) 193  
Operating Profit Margin (%) -9.8% 10.5%  
Interest 44 27 -38.6%
Depreciation 72 64 -11.1%
Profit before Tax (264) 146  
Tax 0 0  
Profit after Tax/(Loss) (264) 146  
Net profit margin (%) -15.5% 7.9%  
Earnings per share -11.6 6.4  
P/E multiple   9.4  

This significant improvement in performance comes on the back of several cost cutting measures employed by the company's management. The company trimmed its workforce from 1,305 to 978 employees during the financial year. As a result employee costs were down to 13% of sales compared to 15% of sales in the previous year. The company is going to further streamline its employee strength by FY2001.

The company's interest burden came down siginficantly on the back of its 'zero debt' status achieved during FY2000. It also managed to triple its export earnings.

The company's brand building drive helped it earn better margins compared to FY99. The company is trimming its direct customer focus and passing it on to its dealer network. Its already reduced its direct customers to 600 from over 3000 in FY98. In a reply to a question at its analyst meet, managing director RVS Ramakrishna said that ITW is looking to brings its direct customers down to about 200-250 in a year's time.

Going forward the company will focus on steel to metal strap conversion in non-ferrous metals and introduce recyclable products. The company hopes improve its profitability through these measures.

Despite its superlative performance, concerns remain over the company's high exposure to the metals segment (40% contribution to turnover in FY2000), and its dependence on its US-based parent ITW Inc. which bailed it out from its financial mess in the last couple of years.

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