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EID Parry: Op. margins jump three fold - Views on News from Equitymaster

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EID Parry: Op. margins jump three fold

Aug 4, 2009

Performance summary
  • Standalone topline witnesses a muted growth of 1% YoY. The sugar division grows by 3% YoY, while the cogen division witnesses a 28% YoY fall.
  • The operating margins on a standalone basis improve from 8% to 25% during 1QFY10.
  • On the standalone front, the bottomline surges nearly 850% YoY mainly led by robust operating margins.
  • On the consolidated basis, the topline increases by 12% YoY. The company reports profits as compared to losses last year (excl. exceptional items).


Standalone picture
Rs(m) 1QFY09 1QFY10 (%) Change
Net sales 2,192 2,214 1.0%
Expenditure 2,011 1,656 -17.7%
Operating profit (EBDITA) 180 558 209.2%
EBDITA margin (%) 8.2% 25.2%  
Other income 60 52 -12.6%
Interest 79 92 16.0%
Depreciation 121 169 40.0%
Profit before tax 40 349 772.3%
Tax 12 86 602.4%
Profit after tax/(loss) 28 263 847.7%
Net profit margin (%) 1.3% 11.9%  
No. of shares (m) 89.25 86.15  
Diluted earnings per share (Rs)*   83.0  
Price to earnings ratio (x)*   3.9  
* 12 month trailing earnings

What has driven performance in 1QFY10?
  • EID Parry reported a flat growth of 1% YoY on a standalone basis during 1QFY10. While sugar and bio- product division witnessed positive growth, cogen revenues declined by 28% YoY. During the quarter, the company crushed 7.3 lakh tonnes of cane compared to 11.6 lakh tonnes in the corresponding period of FY09. While the volumes were lower due to lower cane availability, there was a significant growth in sugar realizations for EID Parry, thereby leading to a 3% YoY growth in the sugar division. The bio- product segment witnessed a 44% YoY increase led by higher realization and favourable forex movement. On the power front, the company exported 54.9 m units of power to the TNEB Grid as compared to 95.6 m units last year. This led to the fall in its revenues.

  • The operating margins on a standalone basis improved from 8% to 25% during 1QFY10. The main reason was lower costs which fell by 18% YoY. The raw material costs stood at 47% of sales as compared to 65% of sales last year.

    Segment-wise performance
    (Rs m) 1QFY09 1QFY10 (%) Change
    Sugar 1,789 1,835 2.6%
    PBIT margin (%) -4.3% 21.4%  
    % of revenue 79.3% 81.5%  
    Co-generation 353 255 -27.8%
    PBIT margin (%) 44.7% 15.1%  
    % of revenue 15.6% 11.3%  
    Bio products 98 141 43.7%
    PBIT margin (%) 0.2% -2.0%  
    % of revenue 4.4% 6.3%  
    Others 16 20 26.5%
    % of revenue 0.7% 0.9%  
           
    Total revenues 2,255 2,250 -0.2%

  • On the EBIT front, the sugar division reported profits as compared to losses last year due to higher realizations. The PBIT margins improved to 21% during 1QFY10. The cogen division however witnessed 28% YoY fall in PBIT profits mainly on account of lower volumes.

  • On the standalone front, the bottomline surged nearly 850% YoY mainly led by a more than 200% increase in the operating profits. Improvement in the sugar division performance aided the strong performance.

  • On the consolidated basis, the topline increased by 12% YoY, while the bottomline ( excluding the extraordinary item), recorded profits to the tune of Rs 573 m as compared to losses of Rs 352 m.

  • EID Parry now has a total sugar capacity of 19,000 TCD, cogeneration at 85 MW and Distillery at 100 KLPD.

  • It bought back 3.1 m equity shares through the open market purchases at an average price of Rs 141 per share. This accounts for 3.51% of share capital of the company.

What to expect?
At the current price of Rs 323, the stock is trading at 3.9 times its trailing 12 month earnings. The company was able to implement its investment proposals, both in sugar and Nutraceuticals businesses as scheduled. This is evident from the revenue growth. With sugar sector expected to witness lower production in the coming season, the sugar prices may sustain firm trends. However, volumes in the sugar and cogen division would remain lower due to lower availability of cane. However, considering that the company failed to display the intended performance over our investment horizon of 2-3 years we discontinue our coverage on the stock.

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