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SP Apparel Ltd: Transitioning from Brexit Impact, Second Half Looks Promising - Views on News from Equitymaster

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  • Nov 17, 2017 - SP Apparel Ltd: Transitioning from Brexit Impact, Second Half Looks Promising

SP Apparel Ltd: Transitioning from Brexit Impact, Second Half Looks Promising
Nov 17, 2017

SP Apparel Limited has announced its financial results for the second quarter of the financial year 2017-18 (2QFY18). During the quarter, revenues were slightly down by 0.5% YoY, however, profits were down by 37.5% YoY. Acquiring

Performance summary
  • For 2QFY18, revenues were slightly down by 0.5% YoY. The company continued to face pressure in the European and UK markets due to the prolonged effect of the Brexit and revenue from the garment division was down 4% YoY. However, retail business continued to grow and revenues for same were up 23% YoY.
  • Even though the currency and Brexit badly impacted the revenue the company maintained a healthy revenue mix in the garment division with 60% fashion garments (better margins) the realisations per piece were around Rs 113 against Rs 102 same quarter last year.
  • The operating profits were down by 7.8% YoY. The operating profits were down largely due to steep increase in the other expenses (up 11.7% YoY). Operating margins declined by 110bps to 14.2%. The company was largely hit by the unfavourable currency movements and raw material prices in the garment division. Further, the company for the first time break even in the retail division.
  • Net Profit for the quarter declined by 37.5% YoY. The steep decline in profits was largely due to increase in interest and depreciation cost. The interest cost was up 83% YoY. However, this included the preference dividend (required by the new Ind AS). If we normalize that the fall in profits was 15% YoY.
  • Standalone Financial Performance
    (Rs m) 2QFY17 2QFY18 Change
    Net sales 1670 1661 -0.5%
    Expenditure 1415 1426 0.8%
    Operating profit (EBDITA) 255 235 -7.8%
    EBDITA margin (%) 15.3% 14.2%  
    Depreciation 47 53 12.4%
    Interest 42 77 83.7%
    Profit before tax 166 105 -36.7%
    Other Income 58 45 -21.5%
    Tax 67 53 -21.8%
    Profit after tax / (loss) 156 98 -37.5%
    Net profit margin (%) 9% 6%  
    No. of shares (m)   25.2  
    Diluted earnings per share (Rs)   20  
    Price to earnings ratio (x)*   19  

    * based on 12 month trailing earnings
    Note: The increase in interest cost and debt is just a re-classification of Preference dividend and
    Preference Capital Respectively (required by IND AS)

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