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  • Aug 17, 2011 - Lakshmi Energy.: Falling sales affects performance

Lakshmi Energy.: Falling sales affects performance

Aug 17, 2011

Lakshmi Energy and Foods Limited has announced its third quarter results for financial year 2010-2011 (3QFY11). The company has reported a 30.5% YoY and 49.4% YoY fall in sales and net profit. Here is our analysis of the results.

What has driven performance in 3QFY11?
  • Consolidated revenues fell by 30.5% YoY during 3QFY11.
  • Operating (EBITDA) margins expanded by 300 basis points due to sharp fall in cost of goods sold.
  • Net profit declined by 49.4% YoY on account of fall in operating income and a sharp jump in interest and depreciation expenses.

(Rs m) 3QFY10 3QFY11 Change
Total income 3,515 2,443 -30.5%
Expenditure 3,026 2,030 -32.9%
Operating profit (EBDITA) 489 413 -15.6%
EBDITA margin (%) 13.9% 16.9%  
Other income 5 0  
Interest 188 231 22.9%
Depreciation 80 98 22.2%
Profit before tax 225 83 -63.0%
Minority Interest - -  
Tax 43 (9) -120.6%
Profit after tax/(loss) 182 92 -49.4%
Net profit margin (%) 5.2% 3.8%  
No. of shares (m) 63 63  
Diluted earnings per share (Rs)*   9.3  
Price to earnings ratio (x)*   2.6  
* 12 month trailing

What has driven performance in 3QFY11?
  • Sales fell by 30.3% YoY in 3QFY11 on account of a slump in agri business and discontinuation of earnings from the non-operational energy business. On a YoY basis, revenues from the agri-business were down by 24.6% as domestic sales of agri products fell by 38.5% to Rs. 1.5 billion. Exports that form a minor share of 36.8% of agri sales were up by 23.6% YoY to Rs. 896.8 million.

    Consolidated cost break-up
    as a % of net sales 3QFY10 3QFY11
    Total Cost of goods 82.3% 77.8%
    Staff Cost 0.5% 0.8%
    Other Expenditure 3.3% 4.4%

  • Operating profitability was favourably impacted on account of lower cost of goods sold. As a percentage of sales, cost of goods sold reduced by 450 basis points to 77.8% in 3QFY11. Other expense to sales ratio was up by 114 basis points to 4.4% during the quarter.

  • Net profit of the company declined by 49.4% YoY. Falling operating income and a sharp increase in interest and depreciation expenses led to the fall in earnings. Interest costs and depreciation outgo, each, increased by 22% YoY during the quarter.

What we expect?
At a price of Rs 24, the stock is trading at 1.2 times our estimated FY13 earnings. As part of its renewed strategy, Lakshmi Energy has increased focus on high margin yielding basmati rice production to cater to both domestic and export markets. The company is setting up a new plant of 40 MT/hour rice milling capacity and is also enhancing its by-product processing capacities.

Lakshmi Energy has bagged basmati export orders valued at Rs. 6,000 million. Resultantly the share of exports, which currently stands at 11.4% of annual sales, will be raised considerably. To enhance distribution of basmati rice and its varieties, the company is expanding its retail presence to more than 30,000 outlets by September 2011. These initiatives are likely to reduce its overt dependence on FCI, miti gate the vagaries in the sales performance and further boost margins. Its biomass power generation business, which contributes 6.5% to overall revenues (FY10), had been non-operational since the start of FY11. The company has approached the Punjab State Power Corporation for a 20-year long contract to sell biomass power. The company’s integrated business model imparting it economies of scale and value-addition from by-products continue to place it favourably among peers. The recent de-risking strategies employed by the company are likely to fructify in the forthcoming quarters. We advise investors to hold on to their positions but to refrain from adding more.

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