Oct 13, 2003|
IPCL: Good show
Reliance controlled IPCL, one of the major players in the petrochemicals segment, declared its 2QFY04 results today. The company registered a 20% bottomline growth on the back of a 7% increase in topline. The results, however, are relatively subdued as compared to the last few quarters wherein IPCL managed to post impressive topline and bottomline growth.
|Operating Profit (EBDIT)
|Operating Profit Margin (%)
|Profit before Tax
|Profit after Tax/(Loss)
|Net profit margin (%)
|No. of Shares
|Diluted Earnings per share*
Let us first consider the 2QFY04 results in brief. The topline increase seems largely a factor of sales volume growth. However, it was the control over expenditure, which helped the company improve its operating margins by 240 basis points. While the raw material contribution as a percentage of sales increased, the management was able to control the staff costs and other administrative expenses. The reduction in staff costs was also due to the fact that over the last two quarters, around 1,600 employees of the company have opted for VRS. The effect of this is visible in the form of extraordinary expenses of Rs 1.3 bn, a part of which (Rs 90 m) has been put to effect in the September quarter. Without the VRS effect, the PAT growth for 2QFY04 would have been at 40%.
Now, as far as the performance of the company for the first half of the current fiscal is concerned, it has been splendid. It can be seen in the table above, the company’s bottomline surged 139% on the back of a 28% growth in topline. During this period, the company’s export of manufactured goods was higher by 44%. The other income component also increased by a hefty 50% on account of higher export benefits.
However, the operating margins of the company have taken a hit in 1HFY04 on account of unfavorable petrochemical product prices during the June 2003 quarter. It should be noted that overall realisations had declined by about 9% in 1QFY04. Increase in raw material prices also pressurised operating margins. However, for the first half of the current fiscal, the interest outgo of the company reduced by 7% signifying that the company’s efforts at reducing debt have been yielding results.
The company has informed that consequent to a change in the method of providing depreciation in respect of certain assets at the Vadodara Complex, the additional depreciation charge of Rs 2.1 bn has been written off against the general reserve. Further, the company has also stated that as per the new accounting standard (AS-26) regarding valuation of intangible assets, an amount of Rs 220 m, being the balance of unamortised miscellaneous expenditure, has been also written off against the general reserve. The effect of these adjustments would lead to a reduction in the book value of the stock.
At Rs 184, the stock is trading at P/E multiple of almost 25x its 1HFY04 annualised earnings. While the valuations are on the higher side of the petrochem spectrum, the outlook given by the management points to the current upturn in the petrochemical cycle sustaining, which would be beneficial for the company. Improved polymer prices and synergies with Reliance are likely to benefit IPCL in terms of cost rationalisation.
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