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Lakshmi Energy: Bottomline hit by raw material - Views on News from Equitymaster

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Lakshmi Energy: Bottomline hit by raw material
Aug 2, 2010

Lakshmi Energy and Foods Limited has announced its 3QFY10 results. The company has reported a 97% YoY growth in sales and 29% YoY fall in net profits. Here is our analysis of the results.

Performance summary
  • Consolidated top-line increased by 97% YoY during 3QFY10.
  • Consolidated operating (EBITDA) margins contract by 17.7% due to higher growth in operating expenses as compared to sales.
  • Consolidated net profit fell by 29% YoY as a result of lower operating income.
  • The consolidated net profit for 9mFY10 increased by 5.5% YoY while the net oprofit margins fell by 4%. This was due to a fall in operating income partly offset by lower effective tax rate.


(Rs m) 3QFY09 3QFY10 Change 9mFY09 9mFY10 Change
Net sales 1,787 3,515 96.7% 5,072 8,060 58.9%
Expenditure 1,222 3,026 147.6% 3,479 6,585 89.3%
Operating profit (EBDITA) 565 489 -13.4% 1,593 1,476 -7.4%
EBDITA margin (%) 31.6% 13.9% 31.4% 18.3%
Other income 0 5 873.5% 5 9 86.8%
Interest 180 188 4.7% 481 505 5.1%
Depreciation 66 80 21.4% 261 241 -7.7%
Profit before tax 319 225 -29.4% 856 739 -13.7%
Minority Interest - - - -
Tax 61 43 -29.9% 241 90 -62.8%
Profit after tax/(loss) 258 182 -29.3% 615 649 5.5%
Net profit margin (%) 14.4% 5.2% 12.1% 8.1%
No. of shares (m) 63 63   63 63  
Diluted earnings per share (Rs)*         15.7  
Price to earnings ratio (x)*         6.1  
* 12 month trailing

What has driven performance in 3QFY10?
  • Sales are higher primarily due to higher offtake in the agri business. The sales in the agri business grew by 165% YoY while the sales of the energy business fell by 30% YoY.
    Consolidated cost break-up
    as a % of net sales 3QFY09 3QFY10 9mFY09 9mFY10
    Total Cost of goods 61.0% 82.3% 62.9% 76.5%
    Staff Cost 1.0% 0.5% 0.9% 0.7%
    Other Expenditure 3.3% 3.3% 4.8% 4.5%

  • Operating (EBITDA) income fell by 13% YoY during the quarter. This was a result of sharp increase in costs of goods and other expenditure. Costs of raw material increased by 165% YoY during the quarter while other expenditure increased by 98% YoY. The operating income could have been lower but for fall in staff costs.

  • Net profit margins for the company fell by 9.2% to stand at 5.2%. This is lower operating margins earned by the company in the quarter.

What we expect?
At a price of Rs 96.3, the stock is trading at 3.3 times our estimated FY11 earnings. While the company has suffered due to lower offtake from FCI, its key customer, the company has taken initiative to increase its presence in the retail market through basmati rice. We recently spoke with the management and they have confirmed that no stock lying with them was damaged in the recent heavy rains in Punjab. They have also indicated that the growth going forward is on track. However, the company is going slow on its power generation plans. Given this, we do not believe that the company will be able to achieve its target price in FY11. We however believe that the target price will be achieved in FY13. Having said that, if the company grows as per plan, stock should see good upside over the next 9-12 months as well.

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