In the previous article, we had given a brief overview of the two companies in terms of which markets they cater to and how their order books have grown over the past few years. In this article, we will take a look at their income statements over the past few years.
During the period FY04 to FY08, KEC International (KEC) has seen its revenues and profits grow at a compounded rate of 37% and 62% respectively, while Jyoti Structures' (JSL) revenues have grown by 46% and 100% respectively.
This difference in growth has been mainly due to the companies' presence in different markets. As such, Jyoti Structures Limited (JSL), which is more focused towards the domestic markets, has grown at a quicker pace as compared to KEC. Robust investments in the Indian T&D space have benefited JSL to attain a strong order book over the past few years. As of March 2008, JSL had an order backlog to sales ratio of 2.3 times, while KEC's order book was 1.6 times its revenues.
We have compared the companies' parameters on the basis of average of the last three years, i.e. from FY06 to FY08.
Three year average cost break up
The major cost heads for both these companies are raw material costs (steel and zinc) and the erection and subcontracting charges. We can observe from the above chart, that input costs form the major portion of their operating expenses. For JSL, the input costs make up nearly 71% of its operating expenses, while KEC's raw material costs are nearly 56% of its expenses.
This significant difference of the above cost head between the two companies is on account of KEC having a larger portion of erection and sub-contracting charges, which is essentially due to its larger international exposure. As such, the company has to pay higher fees and charges for expenses such as subcontracting costs, transport expenses and consumption of construction materials. On the other hand, JSL, having majority of its operations in India, has lesser costs attached to this head.
KEC's operating margins in the past three years have been at an average of 11.4%. On the other hand, JSL has recorded average operating margins of 12.1% during the same period. However, during FY08, KEC recorded operating margins of 12.6%, while JSL's margins stood at 12.8%.
While raw material and subcontracting charges together account for 73% of KEC's sales, the same for JSL adds up to 76.5%. Thus, the main reason for JSL to have relatively better operating margins is due to lower other and personnel expenses (as a percentage of sales).
The net profit margins of both the companies have been almost the same. KEC's average net profit margins for the past three years have been at 4.7%, whereas JSL recorded average margins of4.8%. However, in FY08, KEC recorded a net profit margin of 6.1%, while JSL recorded profit margin of 5.1%. As compared to its average EBIDTA margins, KEC's performance at the bottom line level has been relatively better due to lower interest and tax costs.
In the next article, we will compare both the companies' balance sheets over the past few years.
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