0">ValueNotes (30/11/2012)
Q2FY13 Results Review
Y-o-Y
- Net Sales increased by 29.2% y-o-y to Rs506.8 mn [Q2FY12: Rs392.4 mn], driven by volumes. Pharma Intermediates contributed ~60% to the total sales with Iodine compounds accounting for ~50%.
- Operating profit grew by 24.7% y-o-y to Rs95 [Q2FY12: Rs76.2 mn], while the OPM fell by 67 bps y-o-y to 18.7% on the back of higher employee cost & other expenses (up 43% & 46.4% y-o-y respectively) and also due to higher purchase of finished goods (up 58% y-o-y).
- The impact of higher depreciation cost (up 32.4% y-o-y) and higher effective tax rate (up 96 bps y-o-y to 34%) was offset by decline in the interest cost (down 29.2% y-o-y) and significant increase in the other income (up 166.7% y-o-y). This led to better than expected PAT growth of 65.4% y-o-y, which stood at Rs58.9 mn [Q2FY13: Rs35.6 mn]. PAT margins improved by 255 bps y-o-y to 11.6%. EPS for the quarter stood at Rs3 vs Rs1.8 in Q2FY12.
Q-o-Q
- Sequentially, the net sales declined by 1.9%, which was disappointing. The operating profit declined by 4.7%, while OPM declined by 55 bps q-o-q due to higher employee cost, other expenses & higher purchase of finished goods (up 4.9%, 14.1% & 92.2% q-o-q respectively).
- The effective tax rate on PBT increased by 131 bps q-o-q, but this impact was more than offset by higher other income (up 139.2% q-o-q), flat growth in depreciation & decline in the interest cost (down 34.2% q-o-q). Thus PAT increased by 20.4% Q-o Q, while PAT margins improved by 216 bps q-o-q.
Outlook: HDFC Securities is bullish on the medium to long-term growth prospects of OSCL. Capacity expansion would enable the company to meet the increasing demand from its user industries (pharma, cattle / poultry feed, glass etc) and drive its revenues. The growth would be driven by new as well as existing products. In the Pharma intermediate space, OSCL is likely to benefit from growth in domestic Pharma industry with the growing global demand for generics drugs.
At the CMP, the stock trades at 7.6xFY14E EPS. Though the valuations are looking reasonable, high working capital, delay in ramp ups and high forex exposure (Buyers Credit Rs.35 cr & packing credit foreign currency loans) are some ofthe concerns which restricts us from assigning higher PE multiples to the stock, despite the company’s bright operational future prospects, sound financials, reputed management, large capex plans, good brand image with strong client relationship and R&D skills. For a re-rating in valuations, it is important for OSCL to take steps to improve its working capital cycle, control its debt-equity (especially foreign currency denominated), and avoid any delay in the commissioning of new facilities/ramp ups.