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Ess Dee Aluminium: Acquisition drives growth - Views on News from Equitymaster
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Ess Dee Aluminium: Acquisition drives growth
Nov 10, 2009

Performance summary
  • The results are not fully comparable to the previous quarter/year as it includes financials of India Foils Ltd (IFL).
  • Consolidated sales for 2QFY10 grew by 14% YoY largely aided by IFL sales.
  • Operating (EBITDA) margin expanded by 0.8% to 29% during the quarter aided by lower raw material prices.
  • Net profit margin fell by 1.3% to 17.2% in spite of higher operating income due to higher interest expense and lower other income.
  • Net profit during 1HFY10 fell by 6% YoY due to lower operating income and higher interest expense.


Consolidated financial picture
Rs m 2QFY09 2QFY10 Change 1HFY09 1HFY10 Change
Net sales 1,242 1,416 14.0% 2,310 2,720 17.7%
Expenditure 890 1,004 12.8% 1,662 2,045 23.0%
Operating profit 352 412 17.1% 648 675 4.2%
Operating margins (%) 28.3% 29.1%   28.1% 24.8%  
Other Income 11 7 -31.0% 13 13 2.6%
Interest (net) 27 54 99.2% 50 106 111.9%
Depreciation 12 43 267.2% 23 23 0.0%
Profit before Tax 324 322 -0.5% 588 560 -4.8%
Extraordinary item 0 0   0 0  
Tax 94 79 -16.0% 145 142 -2.0%
Minority interest 0 0   0 1  
Profit after Tax/(Loss) 229 243 6.0% 443 419 -5.5%
Net profit margin (%) 18.5% 17.2%   19.2% 15.4%  
No. of Shares (m) 28 28   28 28  
Diluted earnings per share (Rs)*         (15.2)  
Price to earnings ratio (x)*         na  
* trailing twelve month earnings

What has driven performance in 2QFY10?
  • Top line of the company expanded mainly driven by IFL sales while the standalone sales grew by 7% YoY. The standalone revenue makes up 78% of Ess Dee Aluminium’s consolidated sales (82% in 2QFY09). The increase in sales of the company can be attributed to increase in domestic outsourcing due to lower bulk exports as a result of economic slowdown.

    Cost break-up…
    (Rs m) 2QFY09 2QFY10 Change 1HFY09 1HFY10 Change
    Raw materials 816 893 9.4% 1,534 784 -48.9%
    % sales 65.7% 63.0%   66.4% 28.8%  
    Staff cost 33 58 72.9% 55 115 107.4%
    % sales 2.7% 4.1%   2.4% 4.2%  
    Other expenditure 41 54 31.3% 72 127 75.8%
    % sales 3.3% 3.8%   3.1% 4.7%  

  • Operating income grew by 17% YoY during the quarter. This jump was aided by fall in raw material prices as a percentage of sales. Staff costs during the quarter increased by 73% while other expenditure increased by 32%. The reason for this was the IFL acquisition.

  • Net profit increased by 6% YoY during the quarter aided by growth in profits and lower tax expenses. Net profit could have been higher but for the doubling of interest expense during the quarter due to the IFL acquisition.

What to expect?
At a price of Rs. 349 the stock is trading at 5.7 times our estimated FY12 earnings. The company is expected to benefit from growth in Pharma and FMCG sectors, while the acquisition of IFL would contribute to the company’s growth in the form of new capacities and tax breaks. Going forward, we expect the company to post a decent top line growth, however the margins may come under pressure due to acquisition costs.

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