Lakshmi Energy: Power arrests the decline - Views on News from Equitymaster

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Lakshmi Energy: Power arrests the decline

Jul 23, 2009

Performance summary
  • Consolidated topline declines by 46% YoY during both the period under consideration mainly due to lower offtake.
  • Consolidated operating margins expand by 12% YoY due to faster decline in expenses as compared to sales.
  • Net profit drops by 19% YoY due to lower sales and higher interest costs during 3QFY09. The bottomline is down 29% YoY during 9mFY09.

Consolidated picture
(Rs m) 3QFY08 3QFY09 (%) Change 9mFY08 9mFY09 (%) Change
Net sales 3,326 1,787 -46.3% 9,319 5,072 -45.6%
Expenditure 2,667 1,222 -54.2% 7,499 3,479 -53.6%
Operating profit (EBDITA) 659 565 -14.3% 1,820 1,593 -12.5%
EBDITA margin (%) 19.8% 31.6%   19.5% 31.4%  
Other income 0 0 172.2% 3 5 68.9%
Interest 122 180 47.2% 362 481 32.7%
Depreciation 57 66 16.8% 153 261 71.0%
Profit before tax 480 319 -33.6% 1,308 857 -34.5%
Tax 164 61 -62.7% 441 241 -45.3%
Profit after tax/(loss) 317 258 -18.6% 867 615 -29.0%
Net profit margin (%) 9.5% 14.4%   9.3% 12.1%  
No. of shares (m) 60.0 63.2   60.0 63.2  
Diluted earnings per share (Rs)*         21.6  
Price to earnings ratio (x)*         3.6  
* 12 month trailing

What has driven performance in 3QFY09?
  • Lakshmi Energy and Foods (LEAF) witnessed a 46% YoY decline in the topline during both, the third quarter and nine month period under consideration. Although not strictly comparable as revenues for the latest quarter and nine month period also include contribution from power division, one of the key highlights have been the 58% fall in agri revenues during 3QFY09. During 9mFY09, the fall witnessed was 53% YoY due to lower off take of rice in Punjab by Food Corporation of India (FCI) due to storage problems. However, on a sequential basis, the overall revenues are higher by 18% QoQ while agri revenues increased by 20% QoQ, indicating pick up in offtake. The power segment earned revenues to the tune of Rs 905 m, contributing 18% to the total revenues. The performance is lower than our expectations.

    Consolidated cost break-up
    as a % of net sales 3QFY08 3QFY09 9mFY08 9mFY09
    Total Cost of goods 78.1% 64.2% 82.1% 63.2%
    Staff Cost 0.4% 1.0% 0.4% 0.9%
    Other Expenditure 1.7% 3.3% 1.7% 4.8%

  • Faster decline in operating expenses led to the operating margins improve from 19% to 31% for both the period under consideration. Decline by more than 55% YoY in the raw material prices led to the expansion in margins. Further, the power segment which was not in operation last year added to the growth. On the EBIT front, the agri business saw profits decline by 39% YoY and 46% YoY during 3QFY09 and 9mFY09 respectively. The power segment EBIT margins stood at 43% during 3QFY09 and 68% during the nine month period. The company has done better than our estimates.

  • While the net profit declined by 19% YoY during the third quarter, the fall is less than that witnessed in the topline. This is mainly due to higher operating margins and lower tax rates. The tax rate reduced to 19% from 34% during 3QFY08. For the nine month period, the bottomline is down 29% YoY. Higher depreciation and interest costs (due to expansion) also aided the decline.

What to expect?
At the current price of Rs 73, the stock is trading at a price to earnings multiple of 2.5 times our estimated FY11 earnings. While on a year to year basis, the topline performance has been bad mainly due to the lower offtake, improvement in seen on a sequential basis. Further, the power segment continues to aid the margin growth. While we remain positive on the stock from a long term perspective, we need to review the topline growth. We will soon update the financials of the company.

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