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Ess Dee Aluminium: Dismal earnings in FY12 - Views on News from Equitymaster
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Ess Dee Aluminium: Dismal earnings in FY12
Jun 1, 2012

Ess Dee Aluminium Limited has announced its fourth quarter results for financial year 2011-2012 (4QFY12). The company has reported a 6.8% YoY and 4.6% YoY fall in sales and net profit respectively. Here is our analysis of the results.

Performance summary
  • Consolidated revenues for 4QFY12 fell by 6.8% YoY. The sales during FY12 were down by 3.2% YOY.
  • The company has been able to maintain its operating profitability at around 16%, thanks to a 12.6% reduction in input costs that offset higher employee costs and other expenses. However for the full year FY12, operating margin contracted by 280 basis points due to a steep 47.5% jump in other expenses.
  • Earnings declined by a slower 4.6% aided by higher income and reduced tax incidence offsetting the escalation in interest costs. For the full year FY12, earnings slumped by 42.3% due to a steep jump in other expenses.


Consolidated financial picture
(Rs m) 4QFY11 4QFY12 Change FY11 FY12 Change
Revenues 1,785 1,663 -6.8% 6,807 6,591 -3.2%
Expenditure 1,494 1,395 -6.7% 5,101 5,121 0.4%
Operating profit 291 268 -7.8% 1,706 1,471 -13.8%
Operating margins (%) 16.3% 16.1%   25.1% 22.3%  
Other Income 47 105 121.4% 157 240 52.9%
Interest (net) 46 110 141.1% 221 358 62.0%
Depreciation 58 89 54.9% 203 355 75.3%
Reversal of impairment of assets - -   103    
Profit before Tax 235 174 -26.0% 1,542 997 -35.3%
Extraordinary item - -        
Tax 110 54 -50.4% 362 316 -12.7%
Minority interest - -        
Loss after Tax on account of merger - -        
Profit after Tax/(Loss) 125 120 -4.6% 1,180 681 -42.3%
Net profit margin (%) 7.0% 7.2%   17.3% 10.3%  
No. of Shares (m)         32  
Diluted earnings per share (Rs)*         21.3  
Price to earnings ratio (x)*         6.4  
* trailing twelve month earnings

What has driven performance in 4QFY12?
  • For the third straight quarter in 4QFY12, Ess Dee Aluminium's topline continued to erode. The company's sales were down by 6.8% YOY.

    Cost break-up...
    As % of net sales 4QFY11 4QFY12 Change in basis points
    Total cost of goods sold 74.7% 70.0% -465.45
    Employee costs 4.0% 4.7% 68.54
    Other expenditure 5.0% 9.1% 413.09

  • But the company has been able to stem falling profitability through input cost cutting. The cost of goods sold to sales ratio declined to 70% in 4QFY12 from 75% in the year-ago quarter. This has enabled the company to offset a steep 413 basis points jump in other expenses and maintain operating margins at around 16%.

  • The fall in net profit has been a slower 4.6% as a two-fold rise in other income and lower tax rates negated the steep 141% jump in interest outgo for the quarter. The tax incidence fell to 31% from 47% in the year-ago quarter.

What to expect?
At a price of Rs 136 the stock is trading at 4 times our estimated FY14 earnings.

Ess Dee Aluminium witnessed slowdown in sales in FY12 due to slower offtake by pharma companies. The problem was further compounded by poor capacity utilisation on account of problems in the stabilization of the 11,000 tpa caster billet plant. This along with weak rupee has inflated the company's other expenditure during the year. Even higher interest costs led to a steep contraction in the company's profitability. We would thus advise investors to exercise caution and avoid taking further positions unless there is clarity on the stabilization of the caster billet plant and improvement in capacity utilisation.

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