KRL: Margins to the rescue - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks


Login Failure
(Please do not use this option on a public machine)
  Sign Up | Forgot Password?  

KRL: Margins to the rescue

Jul 26, 2001

Kochi Refineries Ltd. (KRL) has reported a significant drop in topline compared to the previous year. For FY01 the company declared a turnover growth of 23.2%. However, for 4QFY01, sales declined by 5.2%. The decline seems to have spilled into 1QFY02.

(Rs m) 1QFY01 1QFY02 Change
Sales 15,713 10,315 -34.4%
Other Income 190 70 -63.2%
Expenditure 15,321 9,579 -37.5%
Operating Profit (EBDIT) 393 736 87.5%
Operating Profit Margin (%) 2.5% 7.1%  
Interest 248 279 12.5%
Depreciation 248 258 4.0%
Profit before Tax 88 270 208.6%
Tax 8 21 180.0%
Profit after Tax/(Loss) 80 249 211.3%
Net profit margin (%) 0.5% 2.4%  
No. of Shares (eoy) 69 138  
Diluted earnings per share 2.3 7.2  
P/E Ratio   4.7  

Over the last quarter of the previous fiscal the slowdown tightened its grip over the economy. The malaise has debilitated industry further over the first quarter of the new fiscal. In fact, core sector (six key industries) growth in 1QFY02 was only 1% compared to 9.3% in 1QFY01. Although the refining sector grew by 6.4% in the first quarter, growth was much lower than the 34.5% rise witnessed in 1QFY01. In June '01 refining products grew by 11.6%.

Growth, which has slowed down, is respectful considering the situation in other core industries. However, KRL has reported a sharp drop in sales. This could be mainly due to a drop in volumes. The company has reported a drop of 35.4% in throughput.

The operating expenditure is also much lower due to the reduced throughput. Raw material expenditure has dropped by 38.9% YoY. The decline in costs YoY could also be due to higher operating costs incurred on the new diesel hydro-desulphurisation (DHDS) plant in the previous fiscal. Consequently, OPM has increased by 460 basis points. The lift in OPM has helped spur operating profit growth.

The quality of pre-tax earnings has improved with a recovery in operating margins. Adjusting for other income the company would have reported a loss of Rs 103 m in 1QFY01. The effective tax rate of the company has declined by 80 basis points YoY. The lower tax rate could be due to the capital expenditure of Rs 8.5 bn incurred on setting up the DHDS plant. In FY01, the effective tax rate declined by 8.8 percentage points.

Towards the end of the previous fiscal Bharat Petroleum Corporation Ltd. (BPCL) acquired 55% of the Government's holding in KRL for Rs 6.5 bn. Consequently, KRL is now a subsidiary of the refining & marketing major.

At Rs 34 the company trades on a multiple of 4.7x 1QFY02 annualised earnings. The valuations of the company have dropped from 8x in 3QFY01 to 6.4x in 4QFY01. The company had announced a 1:1 bonus in the second half of FY01, which could have led to a rise in prices. Also, markets were expecting an open offer from BPCL for acquiring the Government's stake.

Equitymaster requests your view! Post a comment on "KRL: Margins to the rescue". Click here!


More Views on News

Sorry! There are no related views on news for this company/sector.

Most Popular

Why We Picked This Small-cap Stock for Our Hidden Treasure Subscribers (Profit Hunter)

Sep 17, 2020

This leading household brand will profit big time in a post covid world.

My Top Stock to Buy in this Market Selloff (Profit Hunter)

Sep 22, 2020

The recent correction offers a great opportunity to buy this high conviction smallcap stock.

What Do the Charts Say About Buying Smallcaps Now? (Fast Profits Daily)

Sep 18, 2020

Everyone seems to be excited about buying smallcaps now...but is it the right thing to do? What do the charts tell us? Find out in this video...

How Much Money Do You Need to Be a Professional Trader? (Fast Profits Daily)

Sep 17, 2020

In this video I'll answer a question I get asked often: How much capital do I really need to trade the markets for a living? Let's find out...


Covid-19 Proof
Multibagger Stocks

Covid19 Proof Multibaggers
Get this special report, authored by Equitymaster's top analysts now!
We will never sell or rent your email id.
Please read our Terms


  • Track your investment in KOCHI REFINERIES with Equitymaster's Portfolio Tracker. Set live price alerts, get research alerts and more. Get access now...
  • Add To MyStocks