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IBP: Marketing margin's play - Views on News from Equitymaster
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  • Aug 13, 2003

    IBP: Marketing margin's play

    IBP announced its quarterly results recently. The company reported an 11% rise in its topline while the bottomline spurted by 158%. On the back of strong results, the company was once again on the investors' buying list. Let us analyse the results in detail.

    (Rs m) 1QFY03 1QFY04 Change
    Net sales 22,656 25,026 10.5%
    Other Income 172 155 -10.0%
    Expenditure 22,536 24,596 9.1%
    Operating Profit (EBDIT) 120 430 259.2%
    Operating Profit Margin (%) 0.5% 1.7%  
    Interest 2 0 -86.4%
    Depreciation 109 93 -14.7%
    Profit before Tax 181 492 171.7%
    Tax 59 176 201.2%
    Profit after Tax/(Loss) 122 315 157.6%
    Net profit margin (%) 0.5% 1.3%  
    No. of Shares 22 22  
    Diluted Earnings per share* 22.2 57.1  
    P/E Ratio   10.8  

    Volumes of the petroleum products witnessed a decline on account of truckers strike during the quarter and also due to lower demand. However, higher realisations from its petroleum products led to the resultant increase in its topline. It should be noted that though the prices of petrol and diesel declined thrice during the quarter, they were on a higher base as compared to the same period last year. This resulted into higher realisations.

    Though the company witnessed inventory losses during the quarter, raw material cost as a percentage of sales declined sharply (from 97% in 1QFY03 to 90% in 1QFY04). On an overall basis the total cost as a percentage of sales decline by about 1% and this resulted into higher operating profits for the company. Consequently operating margins also improved by about 120 basis points.

      % of net sales
      1QFY03 1QFY04
    Stock in trade -0.6% 5.3%
    Raw material 97.0% 89.6%
    Staff costs 0.9% 1.0%
    Other Exp 2.1% 2.3%
    Total cost 99.5% 98.3%

    Increase in topline was the main contributor to bottomline growth for the company. Also, the company's marketing margins improved during the quarter due to better realisations as well as lower costs. Under-recoveries in case of LPG and kerosene continue to impact its bottomline. The government plans to remove the subsidy in the 3-5 years.

    At Rs 618, the stock is trading at a P/E multiple of 10.8x its 1QFY04 annualised earnings. IBP is a pure retailing company thus synergies with its parent IOC (in terms of sourcing requirements) will benefit it significantly in the long term. Also, demand is expected to increase with the expected increase in volumes from the auto sector and also increase in industrial activity. While competition is expected to increase on the marketing front post the entry of private players, IBP seems to be in a good position to leverage on its strengths as well as synergies with its parent.



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