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Ess Dee Aluminium: Higher demand helps growth - Views on News from Equitymaster

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Ess Dee Aluminium: Higher demand helps growth
Aug 18, 2010

Ess Dee Aluminum Limited has announced its 1QFY11 results. The company has reported a 17.4% YoY and 54.8% YoY growth in sales and net profit respectively. Here is our analysis of the results.

Performance summary
  • Consolidated sales for 1QFY11 grew by a 17% YoY largely aided by growth in standalone business.
  • Operating (EBITDA) margin expanded by 3% to 28% during the quarter aided by lower raw material costs and staff costs (both as a percentage of sales) as well as fall in other expenditure.
  • Net profit of the company grew by 55% YoY aided by increase in operating income and higher other income.


Consolidated financial picture
(Rs m) 1QFY10 1QFY11 Change
Net sales 1,304 1,531 17.4%
Expenditure 978 1,101 12.6%
Operating profit 326 429 31.6%
Operating margins (%) 25.0% 28.0%  
Other Income 6 33 450.3%
Interest (net) 52 53 1.6%
Depreciation 42 48 13.0%
Reversal of Impairment of assets   -  
Profit before Tax 238 362 52.1%
Extraordinary item - -  
Tax 63 92 47.2%
Minority interest 1 3 185.5%
Profit after Tax/(Loss) 176 272 54.8%
Net profit margin (%) 13.5% 17.8%  
No. of Shares (m) 28 28  
Diluted earnings per share (Rs)*   40.2  
Price to earnings ratio (x)*   12.7  
* trailing twelve month earnings

What has driven performance in 1QFY11?
  • The company’s topline expanded mainly driven by standalone sales. Standalone sales which make up 80% of Ess Dee Aluminium’s consolidated sales grew by 20% YoY. The increase in sales can be attributed to increase in domestic offtake as the economic recovery picked up pace.

    Cost break-up...
    (Rs m) 1QFY10 1QFY11 Change
    Raw materials 847 989 16.7%
    % sales 65.0% 64.6%  
    Staff cost 57 63 11.2%
    % sales 4.4% 4.1%  
    Other expenditure 73 49 -32.8%
    % sales 5.6% 3.2%  

  • Operating income grew by a strong 32% YoY during the quarter. This growth came on the back of higher sales as well as a fall in raw material costs and staff costs (both as a percentage of sales). Growth in operating income was also boosted by a fall of 33% YoY in other expenditure.

  • The company turned in a net profit during the year as a result of higher operating income as well as higher other income. Other income for the year increased by 450%.

What we expect?
At a price of Rs. 514 the stock is trading at 8.4 times our estimated FY12 earnings. The company has benefitted from growth in Pharma and FMCG sectors, while the acquisition of IFL has contributed to the company’s growth in the form of new capacities and tax breaks. Although we do expect the company to sustain a healthy growth rate, reliance on a single supplier for its raw material and volatility in raw material prices remain our concerns with regard to its future performance. Having said that, most of the medium term upsides in the stock have been already priced in.

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