Indo Rama Sythetics Ltd, the Lohia group company, has made a return from the red in FY01. The company recorded losses for three consecutive years prior to fiscal ended March '01. However, the company's sales had been sliding since FY95.
The company is primarily into the manufacture of polyester staple fibre (PSF), polyester filament yarn (PFY) and polyester chips. Polyesters contribute 72% of the revenue. Other key product of the company is texturised yarn. With declining profits since mid-nineties the company slid into the red with the polyester cycle taking a downturn from FY98.
Over FY98 and FY99 polyester prices continued to dip taking the company down along with it. Also, the heavy debt burden put added pressure on the company's earnings. The heavy debt burden meant that any downturn in business would lead to the company being over leveraged.
In FY00 and FY01 polyester prices have recovered enabling the company to come back into the black. However, FY01, was a challenging year for the polyester industry with end products not registering commensurate rise in prices as compared to feedstock prices, PTA and MEG. Prices of polyester end products have weakened over 1QFY02 with domestic and global economic growth slowing down. Weakness in feedstock prices is a consoling factor, which could protect margins. Though revenue growth could take a hit.
Debt pulls it down
The company continues to remain highly leveraged. The decline in debt / equity ratio is due to the company revaluing its assets in FY00, which added Rs 2886 m as revaluation reserve to the networth. Adjusting for this book entry the debt / equity remains at the previous level of 4.6x. Although during the up-cycle in polyesters the interest burden is manageable any downtrend in business prospects could put the company back in the red. The high leverage prevents the company from enjoying a buffer in case of a slowdown in business.
The stock price of Indo Rama has ranged between Rs 5 and Rs 9 during the past 12 months. At the current price of Rs 7 the company trades on a multiple of 6.2x FY01 earnings of Rs 1.1.
More Views on News
Sorry! There are no related views on news for this company/sector.
LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.
SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.
Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India. Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: firstname.lastname@example.org. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407