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Ess Dee Aluminium: Domestic demand boosts growth - Views on News from Equitymaster
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Ess Dee Aluminium: Domestic demand boosts growth
Nov 15, 2010

Ess Dee Aluminium Limited has announced its 2QFY11 results. The company has reported a 14.6% YoY and 66.6% YoY growth in sales and net profit respectively. Here is our analysis of the results.

Performance summary
  • Consolidated sales for 2QFY11 grew by a robust 15% YoY largely aided by its standalone business.
  • Operating (EBITDA) margin fell by 1.6% to 27.5% during the quarter on the back of higher raw material costs and increase in other expenditure (both as a percentage of sales).
  • Net profit of the company grew by 67% YoY aided by increase in operating income, higher other income and reversal of impairment of assets
  • For 1HFY11, the company’s net profit grew by 61% YoY while net profit margins grew by 6% to stand at 21.4%. This performance came on the back of increase in operating income, higher other income and reversal of impairment of assets.

Consolidated financial picture
(Rs m) 2QFY10 2QFY11 Change 1HFY10 1HFY11 Change
Net sales        1,416        1,622 14.6%         2,720         3,153 15.9%
Expenditure        1,004        1,176 17.1%         1,982         2,277 14.9%
Operating profit 412 446 8.3% 738 875 18.6%
Operating margins (%) 29.1% 27.5%   27.1% 27.8%  
Other Income 7  32 323.9%   13   65 380.4%
Interest (net)  54  61 13.7% 106 114 7.8%
Depreciation  43  48 10.7%   86   96 11.4%
Reversal of impairment of assets   -   103    -   103  
Profit before Tax 322 472 46.5% 560 833 48.9%
Extraordinary item   -     -     -   -    
Tax  79  67 -15.9% 142 159 12.0%
Minority interest 0   -      1 -    
Profit after Tax/(Loss) 243 405 66.6% 419 674 60.9%
Net profit margin (%) 17.2% 25.0%   15.4% 21.4%  
No. of Shares (m)  28  29     28   29  
Diluted earnings per share (Rs)*         23.7  
Price to earnings ratio (x)*         20.3  
* trailing twelve month earnings

What has driven performance in 2QFY11?
  • Top line of the company expanded, mainly driven by standalone sales. Standalone sales which make up 96% of Ess Dee Aluminium’s consolidated sales grew by 42% YoY. The increase in sales of the company can be attributed to increase in domestic offtake as the economy picked up.

    Cost break-up...
    (Rs m) 2QFY10 2QFY11 Change 1HFY10 1HFY11 Change
    Raw materials           893        1,028 15.2%         1,740         2,017 15.9%
    % sales 63.0% 63.4%   64.0% 64.0%  
    Staff cost  58  67 16.0% 115 130 13.6%
    % sales 4.1% 4.1%   4.2% 4.1%  
    Other expenditure  54  81 50.1% 127 130 2.4%
    % sales 3.8% 5.0%   4.7% 4.1%  

  • Operating income grew by 8.3% YoY during the quarter. This performance came on the back of increase in raw material costs and higher other expenditure. While raw material costs grew by 15.2% YoY, other expenditure grew by 50% YoY.

  • The company’s net profit increased by 50% during the quarter as a result of higher operating income, higher other income and reversal of impairment of assets. Other income for the quarter increased by 324% YoY. When reversal of impairment of assets is adjusted, net profit is seen to grow by only 24% YoY.

What we expect?
At a price of Rs 481, the stock is trading at 6.1 times our estimated FY13 earnings. The company has benefitted from growth in Pharma and FMCG sectors, while the acquisition of IFL has contributed to the company’s growth in the form of new capacities and tax breaks. Going forward, we expect the company to grow at a healthy rate.

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