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IBP: Subsidy hampers bottomline - Views on News from Equitymaster
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  • May 27, 2003

    IBP: Subsidy hampers bottomline

    IBP, the company acquired by IOC in February 2002, has announced its FY03 results yesterday. While the topline has grown by 6%, bottomline was lower by about 55%. Lets take a look at the detailed performance of the company.

    (Rs m) FY02 FY03 Change
    Net sales 84,526 89,261 5.6%
    Other Income 795 648 -18.4%
    Expenditure 81,777 88,053 7.7%
    Operating Profit (EBDIT) 2,749 1,208 -56.1%
    Operating Profit Margin (%) 3.3% 1.4%  
    Interest 295 5 -98.3%
    Depreciation 349 444 27.3%
    Profit before Tax 2,900 1,407 -51.5%
    Tax 942 530 -43.7%
    Profit after Tax/(Loss) 1,958 877 -55.2%
    Net profit margin (%) 2.3% 1.0%  
    No. of Shares 22.1 22.1  
    Diluted Earnings per share* 88.6 39.7  
    P/E Ratio   7.4  

    The 6% rise in topline is on account of increase in volumes of the products sold as well as higher prices of petroleum products. The petroleum product prices saw the highest ever increase in FY03 in an attempt to align itself to international crude oil prices (With APM dismantling, oil PSUs are free to align petroleum products to international crude prices), which were stronger in the same period. The main business of the company is marketing of petroleum products (though a very small portion of the revenues also comes from its business of chemicals and engineering).

    Despite the increase in topline, the operating margin of the company declined by about 190 basis points. In FY03, the raw material cost as a percentage of sales increased from 92% to about 97%, which could be also be due to the strengthening of crude prices.

    The performance of the company was adversely affected on account of inadequate subsidy with respect to kerosene and domestic LPG. The prices of crude were stronger in FY03 and this has resulted to higher tariff adjusted import parity price. (TAIPP). This subsidy is not yet realized from the government and consequently affected the bottomline. This apart, the marketing margins of diesel has declined due to under recovery of freight against sales due to non-implementation of import parity prices in certain inland locations.

    IBP however managed to reduce the fall in bottomline by significantly lowering interest expenses. The company has become debt free in last financial year. Despite this, the bottomline was down by 55% as compared to FY02.

    At 294, the company is trading at a P/E multiple of 7.4x FY03. The company is trading at a higher P/E as compared to the industry P/E of 5. With the competition increasing on the marketing front, the company may face challenges going forward. However it may benefit from the network of its parent company IOC, which is the market leader in the retail segment.



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