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Wartsila: Improving outlook

Dec 14, 2000

Wartsila India is on a roll these days. The stock has been consistently gaining over the past few weeks. In fact, since October this year, the Wartsila stock price has shot up by almost 44%. With the old economy stocks finding favour on the bourses, this should come as no surprise. However, there are some fundamental issues that have contributed to the stock’s recent run up.

Till the first half of its financial year (June 2000) the company's net profit was down by a whopping 43% to Rs 47 m, as compared to 1HFY00. Its first half turnover also declined by 23% to Rs 1,622 m. It was due to results such as these, which resulted in the stock taking a hit.

However, the company’s third quarter results really put life back into Wartsila. The company recorded a significant 204% jump in net profits to Rs 73 m in its third quarter ended September 30, 2000. The company's turnover was up 67% as compared to the corresponding quarter in 1999. The company's order book position for power plants stood at Rs 1.5 bn on September 30, 2000. This was almost 50% higher than the company's order book position as on September 30, 1999 (Rs 1 bn). These figures signaled that growth is finally taking place in the power sector.

(Rs m) 9mFY00 9mFY01 Change FY00
Sales 2,264 2,451 8.3% 3,139
Other Income 12 13 8.3% 140
Expenditure 2,074 2,245 8.2% 2,976
Operating Profit (EBDIT) 190 206 8.4% 163
Operating Profit Margin (%) 8.4% 8.4%   5.2%
Interest 15 8 -46.7% 23
Depreciation 19 23 21.1% 28
Profit before Tax 168 188 11.9% 252
Other Adjustments -5 -1   -
Tax 61 57 -6.6% 95
Profit after Tax/(Loss) 102 130 27.5% 157
Net profit margin (%) 4.5% 5.3%   5.0%
No. of Shares (eoy) 12.0 12.0   12.0
Earnings per share* 11.3 14.4   13.1
*(annualised)        
Current P/e ratio   8.8    

After its third quarter results, we had indicated that the company is likely to continue its good run for some time to come. We had also indicated that the company’s rating on the bourses is likely to improve.

Wartsila has been able to improve its operating profit margins and has managed to reduce debt. This has also added to its bottomline. We expect the company to record a 4% jump in its turnover to Rs 3.2 bn during its December ending annual results. The company’s profits are likely to show an improvement of around 11% compared to FY00.

At the current price of Rs 127, the stock trades at a P/e multiple of 3.8 times its annualised nine month earnings.

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