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Maharashtra Seamless: Other income saves the day - Views on News from Equitymaster

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Maharashtra Seamless: Other income saves the day
Nov 2, 2010

Mahrashtra Seamless has announced its September quarter results. The company has reported a 3% growth in topline and a 12.5% growth in bottomline on a YoY basis. Here is our analysis of the results.

Performance summary
  • Topline grows by 3% YoY during the quarter, led by both higher volumes as well as realisations.
  • Contraction in operating margins leads to a 4% decline in operating profits.
  • Aided by higher other income and lower taxes, bottomline registers a growth of 12.5% YoY
  • Half yearly bottomline grows 32% YoY on the back of a flattish topline


(Rs m) 2QFY10 2QFY11 Change 1HFY10 1HFY11 Change
Net sales 4,104 4,232 3.1% 8,322 8,263 -0.7%
Expenditure 3,030 3,196 5.5% 6,255 6,250 -0.1%
Operating profit (EBDITA) 1,074 1,036 -3.5% 2,067 2,013 -2.6%
EBDITA margin (%) 26.2% 24.5%   24.8% 24.4%  
Other income 58 136 133.6% 109 453 315.6%
Interest (net) 7 5 -34.3% 19 12 -34.6%
Depreciation 46 45 -3.9% 92 96 4.6%
Profit before tax 1,078 1,123 4.1% 2,065 2,358 14.2%
Extraordinary items - -   - -  
Tax 367 322 -12.2% 701 552 -21.2%
Profit after tax/(loss) 712 801 12.5% 1,364 1,805 32.4%
Net profit margin (%) 17.3% 18.9%   16.4% 21.8%  
No. of shares (m) 70.5 70.5   70.5 70.5  
Diluted earnings per share (Rs)*         46.5  
Price to earnings ratio (x)*         9.2  
(* on trailing twelve months earnings)

What has driven performance in 2QFY11?
  • Company’s topline grew by a modest 3% YoY during the quarter. The growth was a consequence of a slow off take from the company’s clients. However, the company has expressed confidence that the growth is going to be better in the coming quarters. This is in view of the increased rig count and also greater E&P activities. Besides, domestic market conditions, more particularly the boiler sector, have also improved. The company is now putting up an intensive and aggressive marketing approach by penetrating the domestic as well as international market to increase its market presence.

    Cost break-up…
    (Rs m) 2QFY10 2QFY11 Change 1HFY10 1HFY11 Change
    Raw materials 2,396 2,627 9.6% 4,945 5,006 1.2%
    % sales 58.4% 62.1%   59.4% 60.6%  
    Staff cost 70 71 2.3% 126 135 7.0%
    % sales 1.7% 1.7%   1.5% 1.6%  
    Manufacturing expenses 478 431 -9.9% 965 993 2.9%
    % sales 11.6% 10.2%   11.6% 12.0%  
    Other expenditure 87 67 -22.2% 219 116 -46.9%
    % sales 2.1% 1.6%   2.6% 1.4%  

  • As far as margins are concerned, the same came in lower by around 170 basis points during the quarter. This was mainly on account of higher raw material costs, which moved up by 10% YoY on an absolute basis and by 3.7% as a percentage of sales. Higher raw material costs seemed a consequence of an increase in steel prices that the company was not able to fully pass on. Meanwhile, all the other cost heads grew at a lower rate than the topline and hence, prevented the margins from falling further.

  • Growth in PBT has come in at 4% YoY, driven mainly by a huge 134% jump in other income, which in turn was a consequence of the company offloading some mutual fund investments. Lower depreciation and interest costs have also helped. Furthermore, thanks to lower effective tax rate, there has been a further improvement in profitability with PAT growth coming in at nearly 13% YoY.

What to expect?
At the current price of Rs 428, the stock trades at around 8 times its expected FY13 earnings per share. We remain positive on the stock from a medium term perspective.

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