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Indian Rayon: Stagnant revenue growth

Oct 31, 2001

Indian Rayon, a diversified major under the Aditya Birla Group, has reported a 33% rise in profits and a marginal rise in operating margins for the second quarter ended September 30, 2001. Bottomline growth was primarily led by higher other income and a sharp fall in interest costs.

(Rs m) 2QFY01 2QFY02 Change 1HFY01 1HFY02 Change
Sales 3,634 3,631 -0.1% 6,828 7,053 3.3%
Other Income 68 86 27.4% 159 160 0.7%
Expenditure 3,137 3,129 -0.3% 5,935 6,118 3.1%
Operating Profit (EBDIT) 497 502 1.1% 893 935 4.7%
Operating Profit Margin (%) 13.7% 13.8%   13.1% 13.3%  
Interest 202 155 -23.4% 401 315 -21.4%
Depreciation 176 184 4.2% 359 367 2.3%
Profit before Tax 186 250 34.3% 292 413 41.4%
Extraordinary item - -        
Tax 72 99 36.6% 103 163 58.2%
Profit after Tax/(Loss) 114 151 32.9% 189 250 32.2%
Net profit margin (%) 3.1% 4.2%   2.8% 3.5%  
Number of shares 59.9 59.9   59.9 59.9  
Diluted Earnings per share* 7.6 10.1   6.3 8.4  

Sales have stagnated and the reason could be the mature nature of other divisions of the company viz. Viscose Filament Yarn and textiles. Other interest areas like insulators and carbon black are also not doing well in light of slower power reforms and sluggish auto demand in the current year. Much of the growth is estimated to have been aided by the garments division, which has been growing at a rate of 15%. Other income has also increased significantly as this includes insurance claims to be received to the extent of Rs 32.5 m as a result of fire in one of its godowns.

The company has increased its stake in PSI Data Systems to 70.3%. It acquired a 50.3% stake in PSI from Groupe Bull of France at a price of Rs 186 per share, which was further increased through an open offer in the current quarter. This was the third diversification of the company in the last two years after garments and insurance.

One of the key reasons for this sharp rise in profits is a 23% fall in interest costs to Rs 155 m in 2QFY02. Though this was partially offset by higher tax outflow, the net impact has been favorable to the company. The company has paid off some of the debt over the past twelve months.

The scrip is currently trading at Rs 72 on a P/E multiple of 8.6x annualised 1HFY02 earnings. The diversified nature of the company has been the key cause for concern and this reflects in its valuations also. The Aditya Birla Group seems to be using Indian Rayon as a vehicle for diversification in light of the cash rich nature of the company.

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