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HFCL: Extraordinary items spoil show - Views on News from Equitymaster
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  • Jul 4, 2001

    HFCL: Extraordinary items spoil show

    Over the last few months Himachal Futuristic Communication Ltd. has been in the news, however, for all the wrong reasons. Nevertheless, the company has reported strong topline growth in the fiscal ended March '01. In FY00, the company had reported a turnover growth of 45%.

    (Rs m) FY00 FY01 Change
    Sales 5,634 12,800 127.2%
    Other Income 209 985 372.2%
    Expenditure 4,245 9,565 125.3%
    Operating Profit (EBDIT) 1,389 3,235 132.9%
    Operating Profit Margin (%) 24.7% 25.3%  
    Interest 383 350 -8.7%
    Depreciation & amortisation 190 229 20.2%
    Profit before Tax 1,024 3,642 255.7%
    Extraordinary items (58) (1,904) 3206.9%
    Tax 110 458 316.1%
    Profit after Tax/(Loss) 856 1,279 49.4%
    Net profit margin (%) 15.2% 10.0%  
    No. of Shares (eoy) 72 79  
    Earnings per share 10.9 16.2  
    P/E Ratio   4.6  

    The rise in operating profits has been buoyed by the strong topline growth and slight improvement in the operating margins. Operating expenses have run neck to neck with sales, which indicates margins have not increased significantly YoY. The OPM has increased 60 basis points in fiscal '01. Raw material and staff costs have increased by 112% and 105% respectively. But the eyebrow raising expense is administrative cost, which have rocketed by 260% YoY.

    The company has been able to scale back on its interest expense. Depreciation expense has actually increased by 76.6%. The figure is lower in the above table as amortisation costs, which declined by 55.8%, have been clubbed with depreciation.

    The sharp jump in other income has come to the rescue of the company. Removing other income for both years, post tax profits register a decline of 55%. The effective tax rate of the company has also increased significantly (after adjusting extra-ordinary items) by 15 percentage points from 11.4% to 26.4%. Extraordinary items (expenses) have shot up in FY01 pertaining to provisions made for drop in value of investments and towards doubtful loans and advances to HFCL Nine Broadcasting Ltd., Microwave Communication Ltd., HFCL Bezeq Telecom Ltd.

    The average price of HFCL in FY99 was approximately Rs 56. After reaching highs of Rs 2,400 the current market price is Rs 74.5. The stock is trading on a multiple of 4.6x FY01 earnings.



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