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Emco: De-growth all over - Views on News from Equitymaster

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Emco: De-growth all over
Jun 7, 2011

Emco has announced its fourth quarter and full year financial results for 2010-2011. The company has reported 10.5% YoY and 37.7% YoY decline in sales and net profits respectively. Here is our analysis of the results.

Performance summary
  • Standalone topline declines by 10.5% YoY during 4QFY11.
  • Operating profits fall by 24.3% YoY during 4QFY11.
  • Net profits decline by 37.7% YoY during the quarter, led by fall in operating profits and modest rise in depreciation cost.
  • The company has declared dividends of Rs 0.2 per share.

Standalone financial snapshot
4QFY10 4QFY10 4QFY10 4QFY10 4QFY10 4QFY10 4QFY10
Sales 3,764 3,368 -10.5% 9,786 10,495 7.2%
Expenditure 3,442 3,125 -9.2% 8,686 10,538 21.3%
Operating profit (EBDITA) 322 243 -24.3% 1,100 (43)  
Operating profit margin (%) 8.5% 7.2%   11.2% -0.4%  
Other income 0 14 6744.1% 7 16 140.0%
Interest 126 123 -2.1% 368 441 19.9%
Depreciation 45 50 12.3% 179 187 4.8%
Profit before tax 151 84 -44.4% 559 (656)  
Tax 74 36 -51.5% 206 (214)  
Extraordinary items, net of tax - -   985 -  
Profit after tax/(loss) 78 48 -37.7% 1,338 (442)  
Net profit margin (%) 2.1% 1.4%   13.7% -4.2%  
No. of shares (m)         65.1  
Diluted earnings per share (Rs)*         NA  
P/E ratio (x)*            
* On a trailing 12 months basis  # Excluding extraordinary items

What has driven performance in 4QFY11?
  • Emco's standalone topline declined by 10.5% YoY during the quarter.

  • Emco's operating margins contracted to 7.2% during 4QFY11 as compared to 8.5% in 4QFY10. The contraction in operating margins was mainly due to increase in operating expenses as a percentage of sales. Operating expenses increased from 91.0% in 4QFY10 to about 93% in 4QFY11.

  • Net profits declined 37.7% YoY due to decline in operating profits and rise in depreciation expenses. However, tax rates declined from 48.6% in 4QFY10 to 42.4% in 4QFY11 partially limiting the downside in net profits.

What to expect?
At the current price of Rs 56, the stock is trading at multiple of 28x times our estimated FY13 earnings. Considering the current performance and expensive valuations we maintain our cautious view on the stock.

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