• FEBRUARY 28, 2002

Indal: Squeezed by downturn

Maintaining the trend, Indal has managed to once again outperform it's peers on the topline. On the bottomline, the company has benefited from a significant jump in other income and a drop in tax. Considering the slowdown and lower commodity prices the performance is noteworthy.

(Rs m)3QFY013QFY02Change9mFY019mFY02Change
Net Sales 3,238 3,308 2.2% 9,390 9,980 6.3%
Other Income (2) 105   44 232 429.7%
Expenditure 2,537 2,776 9.4% 7,427 8,274 11.4%
Operating Profit (EBDIT) 700 532 -24.1% 1,963 1,705 -13.1%
Operating Profit Margin (%)21.6%16.1% 20.9%17.1% 
Interest 86 79 -7.7% 281 265 -5.7%
Depreciation 159 157 -1.3% 474 475 0.2%
Profit before Tax454400-11.8%1,2521,198-4.3%
Extraordinary items 17 18 6.5% 85 53 -37.4%
Tax 130 81 -37.7% 320 250 -21.9%
Profit after Tax/(Loss) 307 301 -1.8% 848 895 5.6%
Net profit margin (%)9.5%9.1% 9.0%9.0% 
No. of Shares 71 71   71 71  
Diluted Earnings per share17.316.9 15.916.8 
P/E Ratio  5.0    5.1  

An encouraging sign is the impressive performance in the domestic market. Notwithstanding the slowdown, domestic sales have risen by 15.7% YoY in 3QFY02. This trend has been seen through the year with sales for the first nine months increasing by 14.7% YoY. Sales have been hit primarily due to the sharp drop in exports. This was expected, as the global economy decelerated in the current fiscal. September 11 events jammed the brakes on any momentum. Exports are down 26% and 13% for the quarter and nine months ended December '01. Volume sales of most products have increased, which indicates that poor realisations have pulled down turnover.

While sales growth has been sluggish, operating expenses have remained sticky. Consequently, operating margins have declined by 550 and 380 basis points for 3Q and 9mFY02 respectively. Primary reason for costs remaining firm is raw material expenses, which rose by 44% during the quarter. This could be due to higher production, which signals that raw material prices did not drop proportionately with final product prices leading to a squeeze in margins. Despite higher production, power and fuels costs have declined over the concerned periods. This is due to efficiencies arising from better plant utilisation rates.

Interest expenses of the company has been sliding over the past couple of quarters. This is likely to be due to re-financing of high cost debt with low cost borrowing. Other income, which dropped sharply in 2QFY02 has spurted in the quarter ended December '01. This is due to certain items earlier shown in sales now being recorded in other income. Extra-ordinary items pertain to expenses towards voluntary separation scheme.

At Rs 85 the scrip is trading on a multiple of 5.1x 9mFY02 annualised earnings. The stock has risen by 9.3% since announcement of the second quarter results. The company seems to be trading in a valuation band similar to Nalco. However, the earnings are exhibiting more stability warranting a higher valuation.

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