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Aventis: Recovering exports - Views on News from Equitymaster
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Aventis: Recovering exports
Oct 31, 2008

Performance summary
  • Net sales grow by 10% YoY during the quarter led by a decent growth in domestic sales and exports.

  • Operating margins improve marginally by 0.2% during 3QCY08 on the back of a fall in raw material costs and other expenditure (as percentage of sales).

  • PAT grows by 21% YoY during the quarter driven by higher other income and lower depreciation charges.



Financial performance: A snapshot

(Rs m) 3QCY07 3QCY08 Change 9mCY07 9mCY08 Change
Net sales 2,370 2,616 10.4% 7,013 7,501 7.0%
Expenditure 1,818 2,000 10.0% 5,310 5,745 8.2%
Operating profit (EBIDTA) 552 616 11.6% 1,703 1,756 3.1%
EBDITA margin (%) 23.3% 23.5% 24.3% 23.4%
Other income 70 116 65.7% 240 271 12.9%
Interest 2 - 2 1
Depreciation 47 43 -8.5% 139 138 -0.7%
Profit before tax 573 689 20.2% 1,802 1,888 4.8%
Tax 205 243 18.5% 628 679 8.1%
Profit after tax/(loss) 368 446 21.2% 1,174 1,209 3.0%
Net profit margin (%) 15.5% 17.0% 16.7% 16.1%
No. of shares (m) 23.0 23.0
Diluted earnings per share (Rs)* 64.3
Price to earnings ratio (x)* 11.0
* On a trailing 12 months earnings

What has driven performance in 3QCY08?
  • Aventis clocked a decent 10% YoY growth in sales during 3QCY08. This was largely led by the 10% YoY growth in domestic sales and more importantly a considerably improved 9% YoY growth in exports. The performance of the latter particularly was an encouraging sign given that this segment had received a battering in the previous quarters. While no details have been divulged, we believe that part of the reason for the exports growth could be attributed to the depreciation of the rupee against the dollar during the quarter. For the half year, export revenues were lower at 3% YoY chiefly due to the flat growth reported during the first half of the year.

    Revenue break-up

    (Rs m) 3QCY07 3QCY08 Change 9mCY07 9mCY08 Change
    Domestic sales 1,783 1,957 9.8% 5,322 5,720 7.5%
    Export sales 481 522 8.5% 1,373 1,414 3.0%
    Total 2,264 2,479 9.5% 6,695 7,134 6.6%

  • Operating margins improved marginally by 0.2% during the quarter largely due to a fall in raw material costs and other expenditure (as percentage of sales). As a result, operating profits grew by 12% YoY. For the nine month period, however, operating margins declined from 24.3% in 9mCY07 to 23.4% in 9mCY08. Going forward, we do not foresee any significant margin improvement and expect operating margins to remain under pressure.

  • Aventisí bottomline growth (up 21% YoY) during the quarter was higher than the growth in operating profits largely due to higher other income and benign depreciation charges. For the nine month period, net profit growth at 3% YoY was in tandem with the growth in operating profits.


What to expect?
At the current price of Rs 710, the stock is trading at a multiple of 10.3 times our estimated CY10 earnings. In the domestic market, Aventisí strong presence in the fast-growing lifestyle segment along with its focus on strategic brands are expected to be the key growth drivers going forward. Having said that, we expect the pressure on margins to continue going forward. The fact that the exports segment witnessed a growth in sales during the last two quarters is an encouraging sign. That said, the growth in export sales has been inconsistent in the past and more clarity is likely to emerge on this front over the next few quarters. Overall, we maintain our positive view on the stock.

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