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Kanoria Chemicals: Forex boost - Views on News from Equitymaster
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Kanoria Chemicals: Forex boost
Nov 10, 2010

Kanoria Chemicals has announced its September quarter results. The company has reported a flattish growth in topline and a 32% growth in bottomline on a YoY basis. Here is our analysis of the results.

Performance summary
  • Topline registers a flattish growth during the quarter.
  • Contraction in operating margins leads to a 16% fall in operating profits.
  • Extraordinary income helps boost performance, leading to a net profit growth of 32% YoY. Excluding the same, bottomline falls 57% YoY
  • Half yearly bottomline falls 48% YoY on the back of a 4% fall in topline. Excluding the extraordinary, bottomline fall is restricted to 25% YoY

(Rs m) 2QFY10 2QFY11 Change 1HFY10 1HFY11 Change
Net sales             1,093             1,086 -0.7%           2,294           2,195 -4.3%
Expenditure    859    888 3.4%           1,776           1,762 -0.8%
Operating profit (EBDITA)    235    198 -15.7% 518 433 -16.5%
EBDITA margin (%) 21.4% 18.2%   22.6% 19.7%  
Other income 2 0 -93.3% 2 0 -93.3%
Interest (net) 60 54 -9.5% 121 104 -14.4%
Depreciation    100    100 0.1% 199 200 0.1%
Profit before tax 76 43 -43.0% 199 129 -34.9%
Extraordinary income/(expense)   (4) 45      72 6  
Tax 19 19 -2.1%    65    29 -55.1%
Profit after tax/(loss) 52 69 31.8% 206 106 -48.4%
Net profit margin (%) 4.8% 6.3%   9.0% 4.8%  
No. of shares (m)   56.3   56.3               56.3             56.3  
Diluted earnings per share (Rs)*           3.2  
Price to earnings ratio (x)**         10.3  
(* on trailing twelve months earnings)

What has driven performance in 2QFY11?
  • Caustic soda, the company's principal product continues to suffer from low realisations and as a consequence, the segment of chloro chemicals has witnessed a 7% YoY fall in revenues. As per reports, reduced off take by producing industries and increased arrivals from producing regions is putting pressure on the prices. Alco Chemicals, the other division of the company has however done well and posted a near 23% YoY increase in revenues. On account of this buoyancy, the overall topline has managed a flattish sort of growth.

    Segmental break-up...
    (Rs m) 2QFY10 2QFY11 Change 1HFY10 1HFY11 Change
    Chloro Chemicals            
    Revenues                 793                 735 -7.3%           1,644           1,499 -8.8%
    PBIT                 137                 110 -20.0%              322              251 -22.1%
    PBIT margins 17.3% 14.9%   19.6% 16.7%  
    Alco Chemicals            
    Revenues                 281                 345 22.8%              605              677 11.9%
    PBIT                   26                   14 -45.9%                 39                 32 -19.2%
    PBIT margins 9.2% 4.0%   6.5% 4.7%  

  • As far as operating margins are concerned, they have a taken a hit to the tune of 3.2% and consequently, operating profits have fallen 16% YoY. The decline has been attributed mainly to rise in raw material expenses, which the company was not able to fully pass on to end users.

  • At 32%, the growth in net profits has come in much better than the 16% fall in operating profits. This is mainly on account of forex gains to the tune of Rs 45 m. Excluding the same, bottomline suffers a fall of 57% YoY.

What to expect?
At the current price of Rs 33, the stock trades at around 0.6 times its expected FY12 book value per share. We believe that the worst days are perhaps behind the company now as not only would its key segment of chloro chemicals start showing some promise but its new plant will also start making contribution to the company’s growth. We remain positive on the company’s medium term growth prospects.

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