Alstom India’s stock has gained 3.5% to Rs 423.15 after announcing its results. The company’s performance has been impressive in September 2012 quarter. Though growth of 27% year on year in sales (Rs 742 crore) is at a five quarter low, it has come on a significantly higher base (87% in same quarter last year), which is commendable.
Operating profit margin and net profit margin jumped 357 basis points and 247 basis points to 8.5% and 7.4% thanks to control in operating expenditure (319 basis points decline in material cost and erection services to sales at 58.7%) and despite 96% jump in taxation respectively.
If one looks at the year on year performance in past three quarters, Alstom India’s sales growth has been volatile, which is worrying. But the company has managed to show improvement in profitability.
In September 2012 quarter, sales growth has been 27% on a base of 87% in September 2011 quarter. In June 2012 quarter, the same grew 54% helped by a lower base (20% drop witnessed in June 2011 quarter). March 2012 quarter saw a growth of 38% followed by December 2011 quarter’s 28%. Operating profit margin has been improving year on year for past three quarters and expanded the most in September 2012 quarter due to better cost control (DETAILS).
Other income historically has formed a significant portion of net profit. While the company is almost debt free, cash (Rs 65 crore) along with loans and advances (Rs 766 crore) form 32% of total assets as on September 2012. However even after excluding the other income, the company’s net profit margin has improved year on year in past three quarters and expanded the most in Q2 despite firm to rising tax rates. All this indicates that core profitability is improving.
But the outlook on the stock will be positive only when the company is able to report a higher and more importantly sustainable sales growth (though a modest rate) year on year in every quarter. Higher sales growth looks difficult as the company’s order inflows (Rs 2751 crore) and order book (Rs 5,283 crore) had declined 34% and 8.5% respectively in FY12 thanks to slowdown in power generation sector (98% of revenues), which will impact revenues in the coming quarters. Sustainable sales growth can improve the company's discounting.