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Lakshmi Energy: Lower input costs aids margins - Views on News from Equitymaster

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Lakshmi Energy: Lower input costs aids margins
Nov 10, 2009

Performance summary
  • Consolidated top-line declined by 39% YoY during 4QFY09 mainly due to lower offtake.
  • Consolidated operating (EBITDA) margins expand by 11% YoY due to faster decline in expenses as compared to sales.
  • Consolidated net profit margins increased by 8% YoY on the back of lower commodity prices and lower tax expense.
  • The bottom-line for FY09 was lower by 42% due to lower sales offtake.


Consolidated picture
(Rs m) 4QFY08 4QFY09 (%) Change FY08 ^ FY09 (%) Change
Net sales 2,789 1,871 -32.9% 16,048 6,944 -56.7%
Expenditure 2,159 1,251 -42.1% 12,798 4,730 -63.0%
Operating profit (EBDITA) 629 620 -1.5% 3,250 2,213 -31.9%
EBDITA margin (%) 22.6% 33.1%   20.2% 31.9%  
Other income - 1   9 6 -34.1%
Interest 140 157 11.7% 496 638 28.5%
Depreciation 86 43 -49.4% 337 304 -9.7%
Profit before tax 403 421 4.4% 2,426 1,277 -47.3%
Minority Interest 4 -   - -  
Tax 129 100 -22.6% 808 341 -57.8%
Profit after tax/(loss) 270 321 18.8% 1,617 936 -42.1%
Net profit margin (%) 9.7% 17.1%   10.1% 13.5%  
No. of shares (m) 63 63   63 63  
Diluted earnings per share (Rs)*         14.8  
Price to earnings ratio (x)*         8.3  
* 12 month trailing; ^ 18 months

What has driven performance in 4QFY09?
  • Sales are lower primarily due to lower offtake in the agri business. The sales in the agri business fell by 39% YoY while the energy business witnessed strong sales with an increase of Rs. 316 m YoY.

  • Operating income fell by 2% YoY during the quarter mainly benefiting from lower material costs, which fell by 57% YoY. Operating income was also boosted by lower other expenditure which fell by 40% YoY.

    Consolidated cost break-up
    as a % of net sales 4QFY08 4QFY09 FY08 ^ FY09
    Total Cost of goods 72.5% 61.9% 76.5% 62.6%
    Staff Cost 0.5% 1.0% 0.8% 1.0%
    Other Expenditure 4.4% 3.9% 2.9% 4.5%
    ^ 18 months

  • In spite of lower sales and operating income, net profit for the company increased by 19% YoY. The jump came on the back of lower depreciation costs and lower tax expense for the year. Depreciation costs were lower by 49% YoY while tax expenses fell by 23% YoY.

What to expect?
At a price of 122.5 the stock is trading at 4.2 times our estimated FY11 earnings. While on a year to year basis, the top-line performance has been bad mainly due to the lower offtake, improvement is seen on a sequential basis. Further, the power segment continues to aid the margin growth. The company has underperformed our estimates for the year by 15% on the PAT front. However, since our target price is based on the projections for the FY11 and since we believe that the company would be able to make up for the difference over the next couple of years, we stick with our current target price for the company.

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