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BILT: Margins play spoilsport - Views on News from Equitymaster
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BILT: Margins play spoilsport
Nov 8, 2010

BILT has announced its 1QFY11 results. The company has reported a 26% YoY growth in sales and 2% YoY decline in net profits. Here is our analysis of the results.

Performance summary
  • Topline during 1QFY11 (June ending fiscal) grows by a robust 26% YoY boosted by volumes due to added capacity at Bhigwan and Ballarpur.
  • Operating margins shrink by 2.8% due to a sharp spike in raw material costs (as percentage of sales).
  • Contraction in margins and higher interest costs lead to the 2% YoY decline in net profits.

Financial performance: A snapshot
(Rs m) 1QFY10 1QFY11 Change
Net sales 8,104 10,227 26.2%
Expenditure 6,223 8,138 30.8%
Operating profit (EBDITA) 1,881 2,090 11.1%
EBDITA margin (%) 23.2% 20.4%  
Interest (net) 483 710 47.0%
Depreciation 720 794 10.2%
Profit before tax 678 586 -13.5%
Tax 189 83 -56.0%
Minority interest 70 94 33.5%
Profit after tax/(loss) 419 410 -2.2%
Net profit margin (%) 5.2% 4.0%  
No. of shares (m) 655.6 655.6  
Diluted earnings per share (Rs)*   3.0  
Price to earnings ratio (x)*   13.4  
(* on a trailing 12-months basis)

What has driven performance in 1QFY11?
  • BILTís revenues grew by a robust 26% YoY during 1QFY11 largely due to a boost in volumes as its capacity expansions at Ballarpur and Bhigwan came on stream in FY10. As a result, the companyís overall paper business logged in a healthy growth of 25% YoY. Unit Kamalapuram (which manufactures rayon grade pulp) also did well to grow by 36% YoY.

    Segmental snapshot
      1QFY10 1QFY11 Change
    Paper 6,412 7,907 23.3%
    PBIT margin (%) 13.6% 12.6%  
    Paper products & office supplies 851 1,184 39.2%
    PBIT margin (%) 9.4% 5.3%  
    Pulp 661 901 36.3%
    PBIT margin (%) -16.2% 27.0%  
    Others 275 259 -5.7%
    PBIT margin (%) -3.5% -4.1%  
    Total 8,198 10,251 25.0%
    PBIT margin (%) 10.2% 12.6%  

  • BILTís operating margins shrunk by 2.8% during the quarter, largely due to a sharp spike in raw material costs from 27.6% of sales in 1QFY10 to 35.5% in 1QFY11. Higher raw material prices could be attributed to increase in pulp prices. The company managed to keep all its other cost heads under control.

  • BILTís bottomline during the quarter grew declined by 2% YoY. This was largely due to contraction in operating margins and higher interest costs. Even a considerable reduction in tax expenses could not do much in terms of arresting the decline in net profits.

What to expect?
At the current price of Rs 41, the stock is trading at a price to earnings multiple of 6.3 times our estimated FY11 earnings . With the capacity expansion at Bhigwan and Ballarpur coming on stream, volumes and consequently sales are expected to ramp up going forward. Near term pressures are likely to persist in terms of higher raw material costs as pulp prices remain firm. Also, given that Bhigwan imports pulp, the additional capacity coming on stream means that pulp requirements will increase putting further pressure on margins. However, in the longer term, the Sabah acquisition will be beneficial as pulp from the forests in Malaysia would be used at the Indian plants thereby lowering raw material costs. Overall, we maintain our positive view on the stock from a long term perspective.

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