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Ess Dee Aluminium: IFL effect - Views on News from Equitymaster
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Ess Dee Aluminium: IFL effect
Jul 1, 2009

Performance summary
  • The results are not exactly comparable to the previous quarter/ year as it includes financials of India Foils Ltd (IFL) for the period from 19/11/2008 to 31/03/2009.
  • For FY09 sales are higher by 43% YoY. This is largely aided by additional revenue from IFL.
  • The operating margins stand at 26% YoY, down from 28% last year due to the integration of IFL.
  • For the full year, excluding the onetime costs, profits increase by 15% YoY.
  • The board declares a dividend of Rs 2 per share (dividend yield of 0.6 %).


Consolidated picture
(Rs m) 4QFY08 4QFY09 (%) Change FY08 FY09 (%) Change
Net sales 1,007 1,180 17.2% 3,169 4,515 42.5%
Expenditure 710 973 36.9% 2,285 3,362 47.1%
Operating profit (EBDITA) 297 207 -30.2% 884 1,153 30.5%
EBDITA margin (%) 29.5% 17.6%   27.9% 25.5%  
Other income 17 4 -74.7% 80 44 -45.2%
Interest 22 62 187.0% 76 153 100.8%
Depreciation 10 53 410.7% 35 104 194.1%
Profit before tax 282 97   852 940 10.3%
Extraordinary item   (1,081)     (1,081)  
Tax 38 57 50.3% 118 256 117.3%
Profit after tax/(loss) 244 (1,041)   734 (398)  
Minority interest - -   - 158  
Net Profit/loss 244 (1,041)   734 (240)  
Net profit margin (%) 24.2% -88.2% 23.2% -5.3%
No. of shares (m) 27.8 27.8 27.8 27.8  

What has driven performance in FY09?
  • Ess Dee Aluminium reported a topline growth of 17% YoY during the quarter. For FY09 sales are higher by 43% YoY. This is largely aided by additional revenue from IFL. The results are however not comparable as it includes financials of India Foils Ltd (IFL) for the period from 19/11/2008 to 31/03/2009.

  • The company's consolidated operating margins during the quarter have declined to 18% as compared to 30% last year. For the full year, the margins stood at 26% YoY, down from 28% last year. This is marginally lower than our estimates of 27.5%. The margins are lower due to the integration of IFL, which has very low margins.

  • The company has seen losses at the net level during both the periods under consideration. However, excluding the provision for indirect tax (a likely contingent liability for IFL's sales tax arrears which is still under litigation) and asset impairment, the profits for the quarter have declined by 84% YoY. Lower operating margins coupled with higher interest and depreciation led to the fall. For the full year, excluding the onetime costs, the profits have increased by 15% YoY.

  • Excluding IFL's financials and extraordinary provisioning, the income for FY09 stood at Rs 4,477 m and profits reported at Rs 782 m.

What to expect?
At Rs 311, the stock is trading at a price to earnings multiple of 11.7 times our FY11 estimates. The integration of IFL has hampered Ess Dee Aluminium's performance during the year. However, considering the strong demand potential, the company will stand to gain over a long term. IFL has a capacity of 19,000 tonne, thus doubling the company's total capacity. Any company that doubles its capacity in such a short span of time will no doubt have to resort to external funding and will also provide lower than historical returns till the time the new capacity is fully utilized. The lower ratios stem from higher interest expenses as well as depreciation charges. EDAL too will have to bear the brunt of the same. We are in the process of updating the financials of the company and will release a revised target price.

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