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IPCL: Weaker cycle takes toll

Aug 20, 2001

The topline of Indian Petrochemicals Corporation Ltd. (IPCL) continues to remain under pressure in the first quarter of the new fiscal. In 4QFY01, the turnover of the company declined by 4.4%. The pricing environment has further deteriorated in 1QFY02 with weakness in the international commodity markets.

(Rs m) 1QFY01 1QFY02 Change
Sales 10,677 10,992 3.0%
Other Income 277 269 -2.8%
Expenditure 8,373 9,184 9.7%
Operating Profit (EBDIT) 2,304 1,808 -21.5%
Operating Profit Margin (%) 21.6% 16.5%  
Interest 1,202 911 -24.2%
Depreciation 1,024 1,040 1.5%
Profit before Tax 355 127 -64.3%
Tax - -  
Profit after Tax/(Loss) 355 127 -64.3%
Net profit margin (%) 3.3% 1.2%  
No. of Shares (eoy) 249 249  
Earnings per share* 5.7 2.0  
P/E Ratio   22.0  

The lower sales in the previous quarter was accompanied with reduced operating costs, which could indicate decreased production and destocking of inventory. The same seems to have continued into the quarter ended June '01.

Operating costs have increased YoY primarily due to reduced stocks (inventory) as compared to the corresponding quarter of the previous year. Consumption of raw materials declined by 6.6% YoY, other operating expenses declined by 3.7% YoY and staff costs are lower by 2.5% in 1QFY02. Therefore, the sharp drop in OPM may not be a very fair reflection of the operating environment, as in 1QFY01 (Rs 1,551 m) significant costs pertaining to inventory had effectively been deferred.

Interest expense of the quarter has declined YoY for the second consecutive quarter. Interest expenses have been declining QoQ since 3QFY01 (three quarters back to back). The lower interest expense could be due to better working capital. The company has undertaken steps to streamline its supply chain and marketing costs. Logistics, storage and packaging costs have come under the magnifying glass. IPCL also is aiming to enhance visibility on demand and consequently production schedule through MoU with customers.

Other income has saved the day for IPCL. Adjusting for other income the company would have reported a loss of Rs 142 m in 1QFY02. Tax will be provided for at the end of the fiscal. Besides improving working capital efficiency the company will need to work on its operating cost structure, as its operating margins do not cover fixed costs.

At Rs 44.8 the company trades on a multiple of 22x 1QFY02 annualised earnings. Consequently, we could see a correction in the price if the polymer cycle weakens further. At the end of FY01 the company was trading on a multiple of 6.1x earnings.

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