Indo Rama: Turning around - Views on News from Equitymaster

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Indo Rama: Turning around

Jul 17, 2001

Indo Rama Synthetics Ltd. faced severe financial hardships over FY98 to FY00, as the polyester industry was at the peak of the downcycle. Since then prices have recovered, which has helped the company turn around over the past two years. However, with a global slowdown the cycle is again showing signs of weakening. Nevertheless, the company has managed to report a respectable topline growth.

(Rs m) 1QFY01 1QFY02 Change
Sales 4,295 4,613 7.4%
Other Income 35 19 -45.1%
Expenditure 3,564 3,809 6.9%
Operating Profit (EBDIT) 732 804 9.8%
Operating Profit Margin (%) 17.0% 17.4%  
Interest 424 368 -13.3%
Depreciation 260 263 1.2%
Profit before Tax 82 192 133.1%
Tax - -  
Profit after Tax/(Loss) 82 192 133.1%
Net profit margin (%) 1.9% 4.2%  
No. of Shares (eoy) 156 166  
Earnings per share* 2.0 4.6  
P/E Ratio   1.6  
(*annualised)      

The company cut down on costs during the downcycle and could still be benefiting from such measures. Also, the company has implemented an ERP package, J.D. Edwards, which could have reduced working capital costs. Consequently, the OPM of the company has increased by 40 basis points. The operating expenditure is inclusive of doubtful; debts amounting to Rs 38.3 m. Excluding this amount, the OPM increases by 130 basis points.

The bottomline has shown a marked improvement supported by higher operating profits and lower interest costs. The company is attempting to reduce its debt burden. However, even at the end of FY01 the leverage ratio is estimated at 4.6x (excluding revaluation reserves). The company seems to be undertaking capital restructuring to reduce the interest burden and buoy EPS.

In FY00, the company converted debt of Rs 25 m into equity shares and in FY01, loans amounting to Rs 102.7 m was converted into equity issued at par. Consequently, the equity share base has increased by 10 m in the previous fiscal. IFCI, on both occasions, converted its loans into equity. Indo Rama is also, reportedly, in dispute with International Finance Corporation (IFC) over rescheduling of loans amounting to Rs 1,324 m.


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