Essar Oil plans to ramp up refining capacity 5-fold

THE Ruias-owned Essar Oil announced on Friday that they have big plans for the future. The company, which has set up a 10.5 million tonne per annum (mtpa) petroleum refinery in Vadinar, wants to increase the refining capacity by nearly five-fold to 50 mtpa over next three to four years. Essar Oil’s managing director, Naresh Nayyar, said, “We are targeting a refining capacity of one million barrels of oil per day with state-of-the-art technology.” He was addressing an analyst meet in Mumbai.
The company has already embarked on expansion plans to raise its domestic capacity to 34 million tonnes by 2010. For the balance 16 million tonnes, the company is scouting for acquisition targets. The company has approached the government of Kenya for acquiring a four million-tonne refinery in Mombassa and is awaiting their approval. Itwill spend $6 billion to ramp up its Vadinar capacity to 700,000 bpd by 2010. For this, the promoters have already agreed to pump in $2 billion in equity, while financial institutions have committed nearly $4.3 billion of debt. Shortly, the company plans to announce the financial closure of the project. However, it has already started ordering the long lead items to meet tight timelines. The company has commenced commercial operations at its Vadinar refinery since May 1, 2008. “We have already refined one million tonne of crude oil since then,” said the company’s chief financial officer, V Suresh.
The refinery is currently operating at 250,000 barrels per day (bpd) capacity, which is 20% higher than the rated capacity of 210,000 bpd. Since its commissioning in November 2006 the company had been running trial runs to stabilise operations. Post-expansion, Essar Oil will be able to produce Euro IV and Euro V grade of auto fuels. It will have a better product slate and be able to handle sour, heavy and acidic crude oils resulting in substantial improvement in refining margins than its current refinery. Considering the rising demand in domestic markets, the company expects to sell over half of its products in India.
The company is progressing with its petroleum exploration activities with an aim to source 30% of its total refining requirement through its own fields.

Under-recoveries hit IOC’s bottomline

INDIA’S largest petroleum refiner reported losses for the last quarter of FY08 as losses in marketing of petroleum products grew substantially. The company has to sell four products — petrol, diesel, LPG and kerosene — below cost despite rising crude oil prices. Thus its marketing division continues to suffer heavy under-recoveries. The last time IOC reported a quarterly net loss was way back in December 2005. Although the problem of under-recoveriaes has persisted since then, factors such as oil bonds, discounts from upstream companies, profits in refining or extraordinary gains had come to the rescue of the company to avoid slipping into the red.

However, this time under-recoveries were too high to be compensated by the other sources of income. The oil bonds received by IOC during the quarter ended March 2008 jumped 145% to Rs 7,536 crore, while the discounts received from ONGC, Oil India and Gail increased by 58% to Rs 5,376 crore. IOC’s refining business also put up a strong performance as the gross refining margins (GRMs) up by nearly 50% compared to last year and refinery throughput volumes rose by around 4%. Refining margins have improved thanks to higher proportion of sour and heavy grades of crude oil in the total mix.
The overall physical performance of the company was better than last year. IOC’s seven refineries put together reported over 100% capacity utilisation level. The sales grew 8% to 59.3 million tonnes. Exports were up 6% to 3.33 million tonnes. The utilisation of pipelines improved thanks to 11% growth in the pipeline throughput volumes to 57.12 million tonnes.

For the year ended March 2008, the company reported net profits of Rs 5,889.6 crore on a standalone basis thanks to oil bonds worth Rs 18,997 crore received during the year. On a consolidated basis, the performance of the company was slightly better thanks to the substantially improved performance of its subsidiaries such as Chennai Petroleum and Bongaigaon Refinery. On a consolidated basis, the PAT stood at Rs 7,912.7 crore on revenue of Rs 2,089,48 crore.

The company spent Rs 4,900 crore by way of capital expenditure during FY08, half of which went into petrochemicals. The company’s sales of linear alkyl benzene (LAB) spurted 34% to Rs 935 crore with sales volumes touching 1,360,00 tonne. Similarly, the company completed its first full year of operations of a purified terephthalic acid plant at Panipat with sales exceeding 3,75,000 tonnes, generating Rs 1,525 crore.
IOC currently has projects worth over Rs 50,000 crore under various stages of implementation. These include laying pipelines for transportation of crude as well as products, upgradation of refineries, capacity augmentation and a naphtha cracker at Panipat. The planned capex also includes a 15 million tonne per annum refinery at Paradip at a capex of over Rs 25,000 crore, which is expected to be commissioned by 2012. At present, the company is losing around Rs 16.3 per litre of petrol, Rs 23.5 per litre of diesel, Rs 28.7 per litre of kerosene and Rs 306 per cylinder of LPG sold to domestic consumers. This has resulted in worsening its profits as well as cash position. Hence, Indian Oil’s current results give cues of worse results from other oil PSUs like HPCL and BPCL.

GUJARAT STATE Petronet : Eyeing The Future

With the availability of natural gas slated to double in the next three years, Gujarat State Petronet will emerge as a key beneficiary as it’s aggressively expanding its pipeline network. Long-term investors can consider investing in the scrip

GUJARAT STATE Petronet (GSPL) is India’s only company that transmits natural gas for its clients without trading in it. It has set up a 1,130-km-long natural gas pipeline network connecting various districts in Gujarat, which is India’s largest natural gas producing and consuming state. GSPL is expanding its pipeline network aggressively, which has put pressure on its financial performance due to a rise in interest and depreciation costs. However, the current investments will pay off well once more natural gas becomes available and the capacity utilisation improves. With the availability of natural gas slated to double in the next three years, GSPL will emerge as a key beneficiary. Long-term investors can consider investing in the scrip.

BUSINESS:
GSPL covers nearly 33 districts of Gujarat and its clients include Gujarat Power, Essar Steel, Essar Power, Arvind Mills, Gujarat Narmada Valley Fertilizers and Gujarat State Financial Corporation. The company operates its pipeline network on an open-access basis, which means that the transmission capacity is available to all shippers without discrimination. Since the company is not involved in buying and selling gas, it’s not exposed to fluctuations in commodity prices.

GROWTH FACTORS:
GSPL has an aggressive capital expenditure (capex) plan to invest Rs 1,900 crore by ’10 to take the pipeline network to 2,000 km. This will connect a number of gashungry industrial centres to the gas grid, bringing in more business for GSPL. With the natural gas regulator — Petroleum and Natural Gas Regulation Board (PNGRB) — becoming active, the wider reach of these pipelines will assume further significance. PNGRB will not allow GSPL’s competitors to lay parallel pipelines and the company will hold competitive advantage while bidding for new projects in adjacent areas.GSPL’s return on capital employed (RoCE) has remained at reasonable levels of 10-11% in the past couple of years. This is below the 12% RoCE allowed by PNGRB under its guidelines. Thus, there is hardly any risk of GSPL having to reduce transport tariffs in future.

GSPL transports around 17 million metric standard cubic metres of gas a day (mmscmd), but this will double with volumes from two contracts it signed recently. GSPL has signed a five-year agreement with Reliance Industries to transport 11 mmscmd and another contract with Torrent Power to transport 4.5 mmscmd for 20 years. Both these contracts are set to commission by the second half of the current fiscal itself, which will significantly improve the capacity utilisation of GSPL’s pipeline network. Over the next three years, the availability of natural gas in India is expected to double. RIL’s natural gas from the KG basin is expected to start flowing from the second half of ’08. Similarly, Petronet LNG’s expansion project is likely to finish by December ’08, doubling its regasification capacity to 10 million tonnes. Gujarat State Petroleum (GSPC) and ONGC are developing their gas fields on the eastern coast of India, which are likely to start flowing in ’10 onwards. All these will increase the availability of natural gas in Gujarat.
GSPL also holds strategic stakes in three city gas distribution companies — two in Gujarat and one in Andhra Pradhesh, which offer a natural and lucrative diversification opportunity to the company.

FINANCIALS:
The company has witnessed healthy growth during the recent quarters. However, the spurt in interest and depreciation costs on completion of the pipeline projects has impacted its net profits.
The company is charging depreciation onits pipelines at a higher rate, assuming just 12 years of working life. However, the lifetime of the pipelines is estimated at 30 years, which gives it an option to bring down the rate of depreciation any time in future. In fact, in the quarter ended September ’05, India’s largest gas transporter Gail had cut the depreciation rate to 3.17% from earlier 10.34%. A similar depreciation rate cut, if implemented, will boost GSPL’s net profit.

For the 12-month period ended December ’07, the company reported a 2.8% fall in net profit, despite a 35% jump in operating profit, as interest and depreciation costs soared. The volume of gas transported has increased steadily to cross 16.9 mmscmd for the 12-month period ended December ’08.

VALUATIONS:
As the contracts with RIL and Torrent Power become functional in the next 4-5 months, the natural gas volumes transported by GSPL are expected to double. This will bring in additional revenues, with the margins remaining intact. The interest and depreciation costs may rise as and when new pipelines get commissioned. However, for the year ending FY09, we expect the company to report earnings per share of Rs 2.1 and cash earnings of Rs 5.6 per share. Thus, at the current market price of Rs 67, the scrip is trading at a one-year forward P/E of 31.9. However, based on cash profits, the forward P/E works out to just 12.

Considering the aggressive depreciation policy adopted by the company, its real value is reflected by the growth in its cash EPS. Hence, for long-term investors, the scrip offers attractive returns.
Beta: 1.2
Institutional Holding: 29.8%
Dividend Yield: 0.75%
P/E: 47.8
M-Cap: Rs 3,760 cr
CMP: Rs 66.90

ALL PIPED UP
GSPL operates a 1,130-km pipeline network, connecting over 33 districts in Gujarat on an open-access basis
The company is investing Rs 1,900 crore over the next two years to nearly double its pipeline network
GSPL has firm contracts with RIL and Torrent Power, expected to become functional over the next few months, which will double the company’s volumes An improvement in the availability of natural gas in Gujarat will help it improve capacity utilisation
GSPL, which currently serves only bulk customers, is also investing in city gas distribution projects for future growth A substantial rise in interest and depreciation costs have pressurised GSPL’s profitability, but current investments will pave the way for future profitability The institution of a natural gas regulator in India is likely to benefit GSPL, as it will ensure that the company enjoys exclusivity rights on its existing & planned networks

GUJARAT HEAVY Chemicals: Reaping Twin Benefits

Gujarat Heavy Chemicals is going in for a vertical split to list its textile & retail and soda ash businesses separately.This will unlock significant value for investors over a 12-month period

GUJARAT HEAVY Chemicals (GHCL) is a leading soda ash manufacturer in the country, which aspires to become a global home textiles player, fully integrated from spinning to retail. While its soda ash business continues to grow, the company has made acquisitions in the US and UK in the home textiles space over the past couple of years. Its current market capitalisation (m-cap), though, does not fully reflect its home textiles and retail businesses. However, with the company going in for a vertical split to list its home textiles & retail and soda ash businesses separately, we expect significant value-unlocking for investors over a period of 12 months.

BUSINESS:
The company currently operates a 0.85 million tonnes per annum (mtpa) soda ash facility in India and has acquired a subsidiary in Romania with 0.3 mtpa capacity. The Romanian subsidiary is currently breaking even and is expected to turn profitable, thanks to high soda ash prices. In India, GHCL enjoys a unique advantage of owning captive sources of its vital inputs for soda ash such as salt, limestone, met coke and fuel. The company undertakes captive mining of lignite and has replaced imported met coke with briquette coke developed in-house.

GHCL has set up two spinning mills in Madurai with a capacity of 1.15 lakh spindles to manufacture cotton yarn, which is supported by a weaving, dyeing and printing unit at Vapi, with annual capacity of 36 million metres for home textiles.
In the home textiles arena, GHCL acquired three companies in the US and one in the UK. The UK subsidiary, ‘Rosebys’, is the largest home textiles retail chain with more than 300 stores across the UK. The US acquisitions include Dan River, HW Baker and Best Manufacturing Group, primarily catering to the B2B segment. GHCL is also rolling out a chain of 300 retail stores for home textiles in India, which will be present across exclusive and multi-brand outlets. GHCL also operates windmills, which generate carbon credits for the company. It has even set up business process outsourcing (BPO) units in India and the US.

GROWTH DRIVERS:
The uptrend in soda ash prices continues, thanks to strong demand. Soda ash prices are currently ruling around Rs 13,300 per tonne, which is nearly 20% higher than the average price for FY08. Similarly, the volume benefit from expanded capacities will accrue over the next few quarters as the company ramps up its capacity utilisation level to 90% by the end of ’08. GHCL also plans to increase its domestic soda ash capacity beyond 1 million tonnes in next 2-3 years.

On the home textiles and retail front, the company is in the process of turning around its acquired companies and streamlining processes. Its subsidiary in the UK, Rosebys, has already achieved break-even and the company is working hard to achieve breakeven at its US subsidiaries.

GHCL is currently in the process of splitting the company vertically to separate the home textiles & retail and soda ash businesses. The home textiles and retail business, which will have a turnover of over Rs 1,000 crore in the first year itself, will be separately listed on stock exchanges. This is expected to unlock significant value for shareholders. In line with other textile players, GHCL’s home textiles division has so far suffered due to the rupee’s appreciation. However, the outlook for the textiles industry is improving, with the rupee having weakened considerably over the past few months. Currently, at Rs 42.7 against the US dollar, the rupee is trading at a 13-month low.

FINANCIALS:
During the year ended March ’08, the company posted a 31% fall in its standalone net profit, mainly due to a dismal performance by its textiles business. A spurt in interest and depreciation costs also hurt GHCL’s profitability as its expansion projects in soda ash and yarn spinning businesses were complete. However, the benefits of these expansions are expected to accrue only in the current year. Over the past 10 years, the company’s sales have recorded a compound annual growth rate (CAGR) of 13.5%, while net profit has grown 7.8%.

VALUATIONS:
The spin-off of textiles and retail business is the most important trigger for the company in the near future. The new company with over 300 retail outlets in the UK, another 300 in India, institutional clients in the US, well-established brands and benefits of vertical integration is likely to command healthy valuations, despite the low profitability currently. We expect that GHCL’s shareholders will be allotted shares in the new company in a certain proportion under the demerger arrangement, which is yet to be finalised.
In the absence of any published data on GHCL’s overseas subsidiaries for FY08, we believe this business will report annual profit of over Rs 40 crore for FY09 and command a price-to-earnings (P/E) multiple of 20, taking the m-cap of the new company to above Rs 800 crore within a year of listing. Considering GHCL’s current m-cap of around Rs 850 crore, this provides a lucrative opportunity for value growth.

Higher tax outlay dents Gail’s profit

WHAT was given by the fall in subsidy burden and overall improvement in performance was taken away by heavy spurt in the tax provisions for Gail in the quarter ended March 2008. Profits before tax for India’s largest gas transmission company doubled during the quarter as the subsidy burden declined 23% to Rs 387 crore. However, the tax provision at 34% of pre-tax profits was in sharp contrast to the heavy tax writebacks in the corresponding quarter of the previous year. As a result, the growth at the PAT level was stunted to just 6%.

Gail’s overall Q4 performance was healthier compared to the subdued Q3. The company reported sales as well as profits growth in all of its business segments. Particularly, the LPG and liquid hydrocarbons segment posted a major turnaround, as the turnover doubled despite a 5% fall in the volumes to 0.32 mt and profits soared past Rs 353 crore as against a loss in the Q4 of the last year.

Gail manufactures polymers from natural gas feedstock, hence this segment also benefited from the global rise in the polymer prices. The company expanded its polymer capacity by 25% last quarter, boosting the sales volumes by 10% to 1.1 lakh tonne during the current quarter. The sales from polymers were 17% higher and Q4 profits jumped 21%. The natural gas trading business reported over 40% jump in profits while the natural gas transmission business soared 36%.

Being a PSU, the company was affected by the recent Sixth Pay Commission recommendations. The company has made provisions of Rs 105 crore for the quarter as the staff costs jumped by 170% to Rs 220 crore. Going forward, Gail is likely to benefit from increased volumes of natural gas as the entire production of Panna-Mukta-Tapti consortium was transferred to the company with effect from April 1, 2008. Gail plans to invest Rs 3,413 crore during FY09.
Offshore focus props up Varun Shipping’s net

VARUN Shipping posted a higher growth rate in FY08 than the previous fiscal, thanks to its increasing focus on the offshore services segment. The company posted a growth of 29.4% in its total income while net profit swelled by 61.3% for the year ended March 2008. The company has strategically changed its revenue mix as offshore vessels contributed around 20% of its revenue this year compared with a minuscule 3.6% in FY07.

The offshore services continue to be an attractive area of investment as high oil prices have made exploration feasible in deep sea, leading to surge in demand for offshore vessels. The company has achieved a leadership position for offshore vessels as it has three anchor handling vessels in service, the highest among Asian shipping companies. At the start of 2008, the company had indicated plans to spend $400 million for expansion. It has already acquired one anchor-handling vessel, which leaves it with $300 million for further expansion. The company’s fleet size increased to 21 as of March 31, 2008, from 19 a year earlier. However, the debtequity ratio remained at 2.4:1, which is almost same as on March 31, 2007. This is due to sharp rise in top and bottomline, which has enabled the company to plough back enough profits so that debt to equity ratio does not get stretched. The company is already the leader in LPG shipping as it owns more than 80% of LPG tonnage under Indian flag.

Taking A Break

Analysis of cos that have published their Q4 results so far offers little solace, as the trend of slowing growth rate in profits continues

WE ARE still just half-way through the results season, even though the March ’08 quarter ended long ago. A fair number of companies (though not all) have already published their quarterly numbers. Hence, we at ETIG, thought it necessary to take a quick look at India Inc’s performance so far. While this is just an interim review of Corporate India’s performance, we will carry out a detailed analysis in due course, once all the results are announced. The analysis of 1,156 companies that have published their fourth-quarter results so far offers little solace, as the trend of slowing growth rate in profits — which had been haunting Corporate India since the past six quarters — is still visible.
During the March ’08 quarter, India Inc’s aggregate sales rose by 21.5% yearon-year. But operating profit took a hit due to higher raw material costs. Annual growth in operating profit at the aggregate level was just 14.3%, in line with the slowdown witnessed in previous quarters. Further, operating margin weakened to a two-year low of 17.1%.

Corporate India’s other income witnessed a slower growth as companies incurred foreign exchange (forex) losses due to weakening of the rupee against the US dollar during the quarter. As interest and depreciation costs rose moderately over previous year figures, the before-tax profits registered just 15% growth — the lowest in the past 12 quarters.

However, the provision for taxes remained flat compared to year-ago levels. A spurt in tax provisions by companies such as HDFC and Infosys Technologies during the March ’08 quarter was neutralised by substantially lower tax provisions by Mangalore Refinery and Petrochemicals (MRPL), Bharti Airtel, Maruti Suzuki and IFCI. Hindalco Industries, which amalgamated its subsidiary, Indian Aluminium, with itself during the quarter, reported substantial write-back of tax provisions which were made in the previous quarter. However, the stagnant tax burden offered little help to companies’ aggregate bottomline, which grew by 17.1% — again the lowest growth rate in the past two years. During the preceding few quarters, the growth in bottomline was higher on account of rising other income, rather than operating performance. This trend was discontinued during the March ’08 quarter. Excluding other income, the growth in net profit was 7.5% — better than just 5% witnessed in the December ’07 quarter.

Chemical Industry: GREAT CHEMISTRY

The chemicals industry is one of the few sectors that has done well after the recent downturn. Ramkrishna Kashelkar explains why this sector is worth a second look

AFTER THE meltdown earlier this year, the stock market has been range-bound for the past three months. While most sectors have been struggling on the bourses, an unglamorous industry has suddenly come to the forefront by demonstrating its ability to weather the storm.

We are referring to the chemicals industry — since January ’08 the ET Chemicals index fared reasonably well. Last year, the ET Chemicals index may have underperformed the broader benchmark ET100 index, but after the recent meltdown, it has made a stronger recovery compared to ET100. In the past three months, the ET Chemicals index gave returns above 6%, while the ET100 fell 3%.

Despite the strong performance, the valuations of the chemicals industry continue to remain reasonable, which offers scope for investment in this sector. While the average price-toearnings (P/E) multiple of the ET100 index stands at 18.7, that of the ET Chemicals index is 12.4, which is below its five-year average P/E of 13.1.

This is not surprising if one looks at the industry’s financial performance over the past few quarters. The aggregate performance of the chemicals industry in the September ’07 and December ’07 quarters was better compared to the rest of India Inc.
The industry’s growth rates in sales and operating profits have been rising at a time when other sectors are facing a slowdown. The chemicals sector is expected to turn in a similar performance for the March ’08 quarter as well.

A detailed analysis of 35 chemical companies that have published results for the March ’08 quarter reveals a robust revenue growth. Aggregate revenues rose 21% to Rs 2,514 crore.
Additionally, the industry has not just safeguarded its operating margins but has, in fact, slightly improved margins over the past six quarters to 16.8%. This resulted in a 30.3% jump in operating profit at Rs 421.8 crore.

However, the operating performance has been weighed down by rising depreciation costs and tax provisions. In particular, companies such as Sterling Biotech, Gujarat Alkalies and Navin Fluorine have reported a jump in their depreciation provisions, as well as deferred tax liabilities in the current quarter, influencing the overall numbers. The chemicals industry provides the basic building blocks for almost all other manufacturing industries such as textiles, pharmaceuticals, pesticides, packaging, metals and mining. With the manufacturing sector growing rapidly in India, the favourable effects on the domestic chemicals industry are already visible. The demand for basic chemicals is rising sharply, thereby enabling manufacturers to improve their margins. The recent inflation numbers have revealed the ability of the chemicals industry to increase prices and safeguard margins. The wholesale price index (WPI) of organic and inorganic chemicals was ruling nearly 7.5% higher during the first half of the March ’08 quarter, when the overall WPI index was up 4.5%. The prices of a number of chemicals such as acetic acid, ethylene glycol, soda ash, caustic soda, carbon-black are ruling at multi-year high levels. Changes in the international markets have also helped boost the outlook for India’s chemicals industry. China — India’s main competitor in the global chemicals industry — removed the incentives in the form of rebate of value-added tax (VAT) offered on several chemical products exported from China in mid ’07.

Similarly, it tightened up the environmental norms for effluent treatment, which affected the cost efficiency of Chinese producers. This has effectively eased the pressure off the Indian chemicals industry, particularly the dyestuff industry.

The industry’s buoyant outlook is now beginning to reflect on the investment front. A number of expansion projects have been lined up in the domestic chemicals sector and various existing players are implementing greenfield and brownfield expansions, as well as debottlenecking projects.

According to CMIE data, at the end of the March ’08 quarter, the chemicals industry had projects under implementation worth Rs 2,38,000 crore, with another Rs 2,43,000 crore in proposed investments. A year ago, proposed investments stood at half that number.
All of this augurs well for investors seeking opportunities in the chemicals industry. Depending on their risk appetite, investors can choose from two alternative approaches to identify the best investment bets in this industry.

A wide number of companies in this sector such as Foseco India, Clariant Chemicals, BASF, Kanoria Chemicals, Chemfab Alkalis and Pondy Oxides have been paying dividends on a consistent basis with healthy dividend yields. While their dividend yield will give assured returns on the investments, investors can also look forward to growth in earnings per share (EPS), thanks to the improved outlook for the industry.

Investors can also put their money in companies that are expanding capacities to boost their future profits. Companies such as Tata Chemicals, Sterling Biotech, Kanoria Chemicals, IOL Chemicals, Gwalior Chemicals, Himadri Chemicals and Hikal, among others, have expansion projects under implementation currently.

Thanks to the current improved outlook, the chemicals sector is likely to put up an excellent show — both in financial numbers, as well as on the bourses — offering excellent investment opportunities.

Tax adjustments come handy for MRPL in Q4

MANGALORE Refinery and Petrochemicals‘ (MRPL) Q4 results received a boost from the tax adjustments resulting in a 24% growth in net profit to Rs 225.4 crore. The company’s operating performance during the quarter was affected due to lower refinery margins as well as lower volumes.
As the global market witnessed weak gross refining margins (GRMs), MRPL’s GRMs came down to $5.6 per barrel during the quarter, which was the lowest in the entire year. This weakened its operating margins, resulting in a 26% fall in the operating profit. It also reported a 2.2% dip in its refinery throughput which stands at 3.22 mt. For the March 2008 quarter, MRPL reported a spurt in revenues — which grew 41% to Rs 9,500 crore — owing to higher fuel prices in the global market. However, the operating margins were hit on high raw material and staff costs.
The cost of raw material as a percentage to net sales jumped to 93.5% during the current quarter from 88.5% in the corresponding previous quarter. The spurt in staff costs was even steeper. The company made provisions for revision in salaries of its staff, which resulted in a 244% growth in its wage bill. The resultant operating profits were 26% lower on a y-o-y basis. The company recorded a loss of Rs 23.7 crore on forex fluctuations during Q4 vis-à-vis profit of Rs 25.2 crore in Q4 last year. This resulted in a 77% erosion in the other income for the quarter. The resultant PBDIT was 29% lower on a y-o-y basis. After a fall in interest cost and almost flat depreciation charge, the PBT was 36% down at Rs 308.9 crore. Moreover, the company had to provide for higher current taxes due to changes in calculation of Minimum Alternative Tax (MAT).

Q4 lifts Praj’s FY08 numbers

AN exceptionally better last quarter performance helped Praj Industries report a robust 77% spurt in its full-year net profit to Rs 153.5 crore. The fourth quarter witnessed a spurt in operating margins, more than double to 33.2% and net profits jumped likewise to Rs 58.66 crore. Earlier, the Praj srcip suffered setbacks on bourses following a sedate Q3 performance and worries about the food-vs-fuel debate globally, taking the stock price to Rs 100 in the last week of March 2008. However, investors should not read too much into these quarterly results as the company operates in the business of project execution and hence, its quarterly performances fluctuate. On the contrary, the annual numbers give a better view of the company’ sustainable performance.
For the year ended March 2008, Praj topline grew at a modest 15.5%, but the improvement in operating margins, higher other income and a fall in the effective rate of tax boosted results. At the current price of Rs 199, the scrip is now trading at a P/E of 23.7 based on the EPS for the year ended March 2008.
The important feature of FY08 results was the company’s ability to improve its operating margins, which increased to 20.1% during FY08 against 17.3% during FY07. The commissioning of the company’s manufacturing unit in Kandla SEZ was a key reason behind this. Another factor that helped margins was the increase in the share of export business that earns better margins. In the current year, 50% of the company’s revenues came from overseas markets as against 30% last year.