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IPCL: Volumes led growth

Jul 30, 2003

IPCL, one of the major players in petrochemicals sector, announced its quarterly results yesterday. The company reported a significant growth of 58% in the topline. In line with the trend witnessed in the last two quarters, the company has posted a net profit as compared to a loss in the corresponding period previous year.

(Rs m) 1QFY03 1QFY04 Change
Net sales 8,560 13,550 58.3%
Other Income 90 210 133.3%
Expenditure 6,540 11,310 72.9%
Operating Profit (EBDIT) 2,020 2,240 10.9%
Operating Profit Margin (%) 23.6% 16.5%  
Interest 1,050 810 -22.9%
Depreciation 1,120 1,130 0.9%
Profit before Tax -60 510  
Extrordinary expenses   1,220  
Tax - (1,100)  
Profit after Tax/(Loss) (60) 390  
Net profit margin (%) -0.7% 2.9%  
No. of Shares 249.1 249.1  
Diluted Earnings per share* -1.0 6.3  
P/E Ratio   19.7  

Increase in topline was on account of higher volumes sold (67%). However 9% decline in product prices curbed the effect of increase in sales volumes. Exports increased significantly by about 459% in 1QFY04 and added to the topline growth. In 4QFY03, topline was affected due to the Gulf war. With war fears receding in 1QFY04, revenues have grown at a faster rate. On the domestic market front, sales for polymers of IPCL increased by about 39% during the quarter.

Though topline improved significantly, IPCL witnessed a decline in the operating profit margin by about 710 basis points. This decline was on account of unfavorable petrochemical product prices during the June 2003 quarter as compared to the same period last year. It should be noted that overall realisations declined by about 9% in 1QFY04. Increase in raw material prices also pressurised operating margins.

The company was able to reduce its interest outgo by about 23% during the quarter on account of prevailing lower interest rates and reduced debt. This has helped to become profitable for the third quarter in succession.

At Rs 124, the stock is trading at a P/E multiple of 19.7x 1QFY04 annualised earnings. The company is likely to benefit from the cyclical upturn in the petrochemicals sector. Polymer prices have been trading strong starting June 2003. This apart, synergies with Reliance are likely to benefit in terms of cost rationalisation (together they account for about 65%-70% of petrochemicals capacity in India). Deregulation in the natural gas prices may adversely affect the polymers business but cyclical upturn may rub off the effect of deregulation.

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