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Emco: Power woes prove to be a drag - Views on News from Equitymaster
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Emco: Power woes prove to be a drag
Aug 28, 2012

Emco has announced its first quarter financial results for 2012-2013 (1QFY13). The company has reported 11.8% YoY and 54.7% YoY decline in sales and net profits respectively. Here is our analysis of the results.

Performance summary
  • Standalone topline declined 11.8% YoY during 1QFY13.
  • The company's operating profits increased 5.3% YoY in 1QFY13 with margins registering an improvement of 1.9% YoY.
  • The net profits of the company declined 54.7% YoY in 1QFY13 due to rise in depreciation & interest expenses.

Standalone financial performance
(Rs m) 1QFY12 1QFY13 Change
Income from operations 1,880 1,657 -11.8%
Expenditure 1,694 1,461 -13.7%
Operating profit (EBDITA) 186 196 5.3%
Operating profit margin (%) 9.9% 11.8%  
Interest (net) 111 125 12.7%
Depreciation 49 59 19.4%
Other income - -  
Profit before tax 26 12 -53.7%
Tax 8 4 -51.4%
Profit after tax/(loss) 17 8 -54.7%
Net profit margin (%) 0.9% 0.5%  
No. of shares (m)   65.1  
Basic & diluted earnings per share (Rs)   0.1  
P/E ratio (x)*   24.8  
(*On a trailing 12-month basis)

What has driven performance in 1QFY13?
  • Emco's standalone topline declined by 11.8% YoY during the quarter due to slowdown in the power sector and increasing competitive pressures in the transmission & distribution (T&D) space. The company operates under a single segment named T&D hence the segmental breakdown of revenues is not available.

  • The operating profits of the company increased 5.3% YoY during the quarter. The operating margins also improved from 9.9% during 1QFY12 to 11.8% in 1QFY13 due to decline in staff costs and other expenditure as a percentage of sales. The staff cost declined from 7.8% in 1QFY12 to 7.1% in 1QFY13. The other expenditure also declined from 8.8% in 1QFY12 to 7.2% in the current quarter.

  • The net profit of the company declined 54.7% YoY due to rise in depreciation & interest expenses.

What to expect?
At the current price of Rs 27, the stock is trading at a multiple of 25 times its trailing twelve month earnings. Top line growth during the current quarter was subdued due to execution issues prevailing in the power sector which also impacted the capex spend in transmission & distribution (T&D) space. Further, rising competitive intensity in the industry due to overcapacity is expected to impact realizations. In light of these factors and expensive valuations, we maintain our sell view on the stock.

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