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Kanoria Chemicals: Margins remain under pressure
Nov 5, 2009

Performance summary
  • Topline declines by 20% YoY led by subdued performance of both Alco and Chloro chemicals businesses during the quarter.
  • Operating expenses decline by 19.2% YoY, slightly lower than the topline, thus operating margins also contract marginally by 0.8% during the quarter.
  • Bottomline declines by 9.1% YoY, lower than operating profits on account of lower interest costs coupled with lower exceptional loss during the quarter as compared to corresponding quarter last year. However, excluding the exceptional loss, bottomline declines by 42.7% YoY.
  • Half yearly bottomline (excluding exceptional profit) declines by 38% YoY on the back of 14% decline in topline.


(Rs m) 2QFY09 2QFY10 Change 1HFY09 1HFY10 Change
Net sales 1,342 1,073 -20.0% 2,602 2,249 -14%
Expenditure 1,063 859 -19.2% 2,019 1,776 -12%
Operating profit (EBDITA) 279 214 -23.1% 583 472 -19%
EBDITA margin (%) 20.8% 20.0%   22.4% 21.0%  
Other income 26 22 -14.5% 47 47  
Interest (net) 102 60 -41.0% 195 121 -38%
Depreciation 97 100 3.6% 191 199 5%
Profit before tax 106 76 -28.4% 245 199 -19%
Extraordinary items (41) (4)   (103) 72  
Tax 7 19 166.7% 27 65 138%
Profit after tax/(loss) 57 52 -9.1% 114 206 80%
Net profit margin (%) 4.3% 4.9%   4.4% 9.1%  
No. of shares (m)   56.3     56.3  
Diluted earnings per share (Rs)*         4.2  
Price to earnings ratio (x)**         7.1  
* annualised, ** on trailing twelve months earnings

What has driven performance in 2QFY10?
  • The topline of the company declined by 20% YoY mainly on account of the subdued performance of the Alco chemicals segment during the quarter. The revenues from Alco chemical segment declined by 32.2% YoY due to subdued demand from the user industries. Chloro chemicals segment also witnessed a decline in the revenues by 17.4% YoY during the quarter.

  • On the operating front, operating profits declined by 23.1% YoY , slightly higher than the fall in the topline mainly on account of higher power costs and staff expenses during the quarter. Consequently operating margins declined from 20.8% in 2QFY09 to 20% in 2QFY10. As regards the PBIT margins, Choro chemicals margins declined by 1.8% YoY to 13.6% in 2QFY10. However, PBIT margins of Alco chemical segment remained nearly stable at 9.2% during the quarter.

    Cost breakup
    (Rs m) 2QFY09 2QFY10 Change 1HFY09 1HFY10 Change
    Raw materials 586 428 -27.0% 1,071 678.60 -37%
    % sales 43.6% 39.8%   41.1% 30.2%  
    Power cost 195 201 3.4% 400 441.20 10%
    % sales 14.5% 18.7%   15.4% 19.6%  
    Staff costs 78 84 8.4% 162 165.00 2%
    % sales 5.8% 7.9%   6.2% 7.3%  
    Other expenditure 205 146 -28.8% 386 291.60 -24%
    % sales 15.3% 13.6%   14.8% 13.0%  

  • The bottomline declined by 9.1% YoY, lower than the operating profits. This was primarily on account of lower exceptional losses due to forex exchange rates on the revaluation of outstanding FCCBs as compared corresponding period last year. However, excluding the same, the bottomline declined by 42.7% YoY.

What to expect?
At current price of Rs 31, the stock of Kanoria Chemicals is trading at 0.6 times our expected FY12 book value per share. While the topline of the company has been lower than our projections, the bottomline has surpassed our estimates. We continue to remain positive on the stock.

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