ICI India has reported a 6.8% drop in sales to Rs 8,356 m for FY01. The company seems to have recorded an impressive fourth quarter performance given the fact that sales were down by 8.4% in the first nine months of FY01.
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However, the performance of the company is not comparable with last year because ICI sold its explosive division in 2000, which contributed to 6.8% of FY00 turnover. Since the company has diversified interest across various segments like textile auxiliaries, pharmaceuticals and pre-treatment chemicals, operating margins have dropped significantly. Margins have fallen from 9.0% in FY00 to 7.4% in FY01. As a result, profits at the operating level has declined by 23% to Rs 620 m.
During the year, the polyurethanes business of the company was transferred to Huntsman International (India) on 31st March 2001, for a gross consideration of Rs 825 m. Other exceptional items include, profit from disposal of residential properties (Rs 213 m), offset by charge in respect of expenditure on voluntary retirement scheme (Rs 84 m), costs of restructuring at the Rishra site (Rs 76 m) and write down of assets in leased office space (Rs 8 m).
The company has utilised the surplus cash to retire its debt (Rs 473 m in FY00), which has resulted in lower interest costs for FY01. Depreciation has also fallen primarily on account of hive-offs.
The company's diversified businesses continue to remain a drag on its profitability. Though it has plans to divest its other non-core businesses like pharmaceuticals and textiles auxiliaries, ICI India is slow on the restructuring front (it has been restructuring its businesses for almost a decade). The future growth potential lies in concentrating on the paint division, which contributed to around 53% of FY00 turnover (including the polyurethane division).
The scrip is currently trading at Rs 68 at a P/E multiple of 4.0x the FY01 earnings. On the FY01 sales of Rs 8,356 m, market capitalisation to sales works out to 0.3 times (market capitalisation is Rs 2,779 m).
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