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Emco: Bottomline gives way to losses
Aug 2, 2010

Performance summary
  • Standalone topline falls 38% YoY during 1QFY11.
  • Operating margins fall into negative territory during the quarter, impacted by higher costs of raw materials as well as higher staff costs and other expenditure (all as percentage of sales).
  • Reports a net loss of Rs 259 m on account of the fall in operating margins as well as fixed charges of interest expenses and depreciation charges.


Financial performance snapshot
(Rs m) 1QFY10 1QFY11 Change
Sales 1,926 1,186 -38.4%
Expenditure 1,674 1,441 -13.9%
Operating profit (EBDITA) 252 (255) -201.1%
Operating profit margin (%) 13.1% -21.5%  
Other income 0 0  
Interest 87 91 4.6%
Depreciation 43 46 6.6%
Profit before tax 122 (392) -420.4%
Extraordinary income/(expense) - -  
Tax 41 (132) -421.7%
Profit after tax/(loss) 81 (259) -419.7%
Net profit margin (%) 4.2% -21.9%  
No. of shares 58.8 61.9  
Diluted earnings per share (Rs)*   0.2  
P/E ratio (x)*   303.2  
* On a trailing 12 months basis

What has driven performance in 1QFY11?
  • Emco’s standalone topline saw a significant fall of 38% YoY during the quarter. A part of the reason for the same is lower realisations due to the intense competitive pressures and substantially increased capacity that the industry has been facing in recent times. Such a dismal performance has become ubiquitous in the entire transmission and distribution equipment industry in recent times.

  • Emco saw losses at the operating level itself. This was largely due a significant rise in all its cost heads including raw material costs, staff costs as well as a rise in other expenditure (all as a percentage of sales). Pressure on margins is expected to continue for atleast a few quarters due heightened competitive pressures owing to increased capacities by many of the players in the industry. The fall in operating margins led to an operating loss of Rs 255 m during the quarter.

  • Despite the fall in topline, Emco’s interest costs and depreciation charges remained where they are. Thus these fixed costs led to an even greater loss on the bottomline front. However, the tax credits that the company will get to offset against future profits on account of this loss helped bring down the losses that the company reported at the net level, which stood at Rs 259 m for the quarter.

What to expect?
At the current price of Rs 68, the stock is trading at a multiple of 8.6 times our estimated FY12 earnings. At the current levels, we continue to have a cautious view on the stock (Research Pro subscribers, kindly click Here.

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