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Ess Dee Aluminium.: Higher taxes bring down profits - Views on News from Equitymaster

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  • Aug 17, 2011 - Ess Dee Aluminium.: Higher taxes bring down profits

Ess Dee Aluminium.: Higher taxes bring down profits
Aug 17, 2011

Ess Dee Aluminium Ltd has announced its first quarter results for the financial year 2011-2012(1QFY12). The company has reported a 14.2% YoY growth in sales and a 24.6% YoY decline in net profits. Here is our analysis of the results.

Performance summary
  • Consolidated revenues for Ess Dee Aluminium grew by 14.2% YoY during the quarter.
  • Operating margins declined to 25.1% as compared to the 28% seen during the same period last year. This was due to increase in all the heads of costs (as a percentage of sales).
  • Net profit declined by 24.6% YoY during the quarter. This was mainly on account of higher tax rates during the quarter.

Consolidated financial performance snapshot
(Rs m) 1QFY11 1QFY12 % change
Net sales 1,531 1,748 14.2%
Expenditure 1,101 1,310 19.0%
Operating profit (EBDITA) 429 438 2.1%
EBDITA margin (%) 28.0% 25.1%  
Other income 33 49 47.8%
Interest 53 73 38.6%
Depreciation 48 68 42.2%
Profit before tax 362 346 -4.4%
Exceptional Items      
Tax 92 140 51.8%
Profit after tax/(loss) 269 205 -23.7%
Share of profits from associates - -  
Minority interest 3 -  
Net Profit after tax 272 205 -24.6%
Net profit margin (%) 17.8% 11.8%  
No. of shares (m) 28 32  
Diluted earnings per share (Rs)*   34.7  
P/E ratio (x)*   7.8  
*On a trailing 12-months basis

What has driven performance in 1QFY12?
  • Consolidated sales for the company clocked a growth of 14.2% YoY during the quarter. Growth would have been higher if it had not been for the spill over effect of production loss due to the backward integration exercise being carried out. Production was also impacted by a fire at the company's manufacturing premises. However this is now complete and volumes are expected to grow in coming quarters.

  • Operating margins for the company declined by 2.9% YoY to 25.1% during the quarter. This was on account of an increase in all the cost heads (as a percentage of sales).

  • The net profits for the quarter declined by 24.6% YoY during the quarter. This was on account of higher tax outflow during the quarter. Effective tax rates rose to 40.6% during 1QFY12 as compared to 25.6% seen in 1QFY11.

What to expect?
At the current price of Rs 270, the stock is trading at a multiple of 7.8 times its trailing 12 month earnings. The management has stated that the new facility would be completed and commercial production would commence by the end of financial year 2012-2013 (FY13). This facility would increase the company's capacity by 15,000 MT. The company has benefitted from growth in Pharma and FMCG sectors. The management expects revenues to grow by 25-30% for the fiscal year FY12. Boosted by the company's excellent long term growth prospect, we maintain our 'Buy' view on the same from a 2-3 years perspective.

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