EID Parry - Thread
RAJESH DESAI
EID Parry’s (EID) Q1FY13 revenue and adjusted PAT were in line. EBITDA margin expanded 10.8% even as the adjusted PAT at Rs782mn is substantially higher than Rs314mn YoY. This was on account of robust volume of sugar and better operating leverage. Moreover, the recent sugar price increase by ~20% over the past one month, owing to demand picking up ahead of the festival season and monsoon concerns, is likely to augur well for EID. Over the last one quarter, EID has closed the discounting gap with Coromandel from 35% in April 2012 to 15% currently. However, owing to the improving sugar segment performance coupled with the likely upside in Coromandel International translating into higher valuation, Edelweiss remains positive on the stock. Maintain ‘BUY’.
Revenue, adjusted PAT in line, sugar performance improves
EID posted a consolidated revenue growth of 8.6%, EBITDA margin of 10.8% (up 160 bps YoY and 180 bps QoQ) and adj. PAT of Rs782mn (up 149%) in line with the expectation. The strong growth in profitability is primarily on account of an improved performance in the sugar segment which expanded PBIT margin by 830 bps YoY to 1.1% in Q1FY13.
Key highlights – sugar prices shoot up over the past one month
- While the free sale sugar price for EID was at Rs27.5/kg in Q1FY13, sugar price in general has shot up by about 20% over the past one month to Rs34/kg currently, owing to concerns over monsoon and an incremental demand coming ahead of the festive season. This is likely to augur well for the profitability of EID.
- EID and its subsidiaries crushed 1.82mn MT cane in Q1FY13 (up 19% YoY) vis-à-vis 1.52mn MT in Q1FY12 and 2.69mn MT in Q4FY12. Sugar sales volume was 0.22mn MT on a consolidated basis during Q1FY13(0.16mn MT YoY), out of which, 94,337 MT was exported. Management guides for ~67,000 MT of exports for Q2FY13.
- Management guides for ~8mn MT cane crushing in FY13 vs 6.9mn MT in FY12.
Outlook and valuations: Attractive; maintain ‘BUY’
Factoring in a higher sugar realization, Edelweiss has increased their EPS estimates by 6.8% and 4.4% for FY13 and FY14 respectively. EID is currently available at an attractive valuation of 6.9x and 5.8x consolidated P/E for FY13E and FY14E respectively. Edelweiss maintains ‘BUY’ with a revised target price of Rs301/share (Rs295 earlier).
pfa
--
CA. Rajesh Desai
Rajesh Desai
Sweet value in EID-Parry
The Government’s decision to do away with the levy quota for sugar makers sparked off 10-15 per cent rallies in some sugar stocks last week. But the stock of EID-Parry hasn’t moved much. Its diversified business interests and muted near term prospects for its sugar business, were dampeners. But at the current market price of Rs 152, the stock offers great value for any investor willing to wait for 2-3 years. The company’s holdings in Coromandel International, a subsidiary, are alone worth Rs 151, suggesting that the market is assigning almost no value to the sugar business and other investments.
Acquisitions have endowed EID-Parry with total sugarcane crushing capacities of nearly 35,000 tonnes per day (tcd) and the ability to generate 146 MW and 230 kilolitres per day of alcohol from by-products. The immediate prospects for the sugar business are lacklustre, with excess output and a global sugar glut likely to depress realisations over the next year. But a structural improvement in the profitability and prospects for the company is likely over 2-3 years.
One, there is the move to decontrol the industry. The removal of levy quota - the obligation on mills to supply 10 per cent of their annual output to the government at a 30 per cent discount to market price, will flow directly to player’s profits this year. A rough estimate suggests that the lifting of the levy quota may add about 15 per cent to EID-Parry’s per share earnings. Over the medium term, EID-Parry is likely to enjoy better profit margins than UP-based peers, given the higher recovery rates from mills located in Tamil Nadu, Karnataka and Andhra Pradesh and lower cane prices.
Two, another earnings trigger is likely from ethanol. Once the oil companies comply with the Government push for mandatory fuel blending, realisations on ethanol are likely to get a 20-30 per cent boost as they align with market rates.
Three, the company’s sugar refinery is also likely to make a positive contribution once its fuel problems are resolved and sugar imports/exports are freed up. In all, the company’s integrated operations with earnings derived from sugar, power, exports and ethanol will hold it in good stead in a decontrolled scenario.
The EID-Parry stock has always derived much of its value from its lucrative investment book. Apart from Coromandel’s value at Rs 151/share, EID-Parry’s other investments are worth roughly Rs 18. Its core sugar business, at book value, is worth Rs 70. The only dampener for the near term is the likelihood of losses as the company integrates and restructures its newly acquired subsidiaries. However, the annual dividend payout of Rs 6 per share, translates into an attractive dividend yield of 4 per cent.
--
CA. Rajesh Desai
Rajesh Desai
-Total income up 18 percent at Rs 3864 Crore versus Rs 3267 Crore
-EBITDA down 23.5 percent at Rs 278 Crore versus Rs 364 Crore
-Margins at 7.2 percent versus 11 percent
-Net Profit down 63 percent at Rs 68 Crore versus Rs 183 Crore
-Fall in profit due to losses in sugar division
-Sugar division turns red & report Loss of Rs 48.7 Crore during the quarter versus Rs 2.7 Crore profit YoY
--
CA. Rajesh Desai