 "Finance cost - a game changer")
One of my trusted stock-picking confidantes is the 'finance cost' line in quarterly results. I put this accomplice to effective use over the past month and see what I got:
Vardhman Textiles: This yarn giant slashed its interest cost from Rs 40 crore in the first quarter of 2014-15 to Rs 26.30 crore in the first quarter of the current financial year, accounting for nearly 35 per cent of its profit increase quarter-on-quarter, or q-o-q, (Rs 109 crore to Rs 145 crore). This is likely to become a consistent trend, what with the company announcing its decision to repay Rs 1,250 crore in two years.
JK Tyre: Interest costs were down from Rs 69.69 crore to Rs 64.65 crore q-o-q across the two financial years, even as the broad industry continued to complain about dumping from China and increased competition within India. Whoever is managing the cash needs a good bonus.
Gujarat State Petronet: The company reported interest outflow of Rs 32 crore in the first quarter of 2014-15, pared to Rs 20.7 crore in the first quarter of the current year, even as revenues increased from Rs 230 crore to Rs 259 crore. Interest moderation accounted for 40 per cent of this profit increase.
VRL Logistics: The company has moderated interest across the past five quarters, signifying an unmistakable business traction. What was a Rs 15.4 crore outflow in the first quarter of 2014-15 was down to Rs 10.33 crore in the first quarter of the current year; interest cover strengthened from 3.5 to 6-plus.
IFGL Refractories: This refractory manufacturer is a company I would have been scared to touch. Supplying to the steel sector. Exporting products in a dull market. Results went through a profit squeeze in the past five quarters. Kiss of death in most books. I am beginning to change my stance. Net profit rebounded from Rs 7.8 crore in the last quarter of 2014-15 to Rs 16 crore in the first quarter of this year. The endorsement is in the interest cost: declined Rs 10 lakh to Rs 1.2 crore across the quarters, signifying a phenomenal interest cover now in excess of 20.
Deccan Cements: In a slowing economy and glut-marked sector, it takes calibre to reduce interest. The company reported an interest outflow of Rs 6.78 crore in the first quarter of 2014-15 even as it reported a net loss of Rs 4.66 crore at that time. This year, the company reported an interest outflow of Rs 5.20 crore and a profit of Rs 13.92 crore.
NCL Industries has done almost likewise.
Vardhman Textiles: This yarn giant slashed its interest cost from Rs 40 crore in the first quarter of 2014-15 to Rs 26.30 crore in the first quarter of the current financial year, accounting for nearly 35 per cent of its profit increase quarter-on-quarter, or q-o-q, (Rs 109 crore to Rs 145 crore). This is likely to become a consistent trend, what with the company announcing its decision to repay Rs 1,250 crore in two years.
JK Tyre: Interest costs were down from Rs 69.69 crore to Rs 64.65 crore q-o-q across the two financial years, even as the broad industry continued to complain about dumping from China and increased competition within India. Whoever is managing the cash needs a good bonus.
Also Read
CCL Products: The company paid Rs 4.23 crore as interest in the first quarter of 2014-15, moderated down to Rs 2.73 crore in the last quarter of 2014-15 and Rs 2.58 crore in the first quarter of the current financial year. Needless to add, profit after tax jumped 50 per cent to Rs 30 crore in the first quarter of the current financial year.
Gujarat State Petronet: The company reported interest outflow of Rs 32 crore in the first quarter of 2014-15, pared to Rs 20.7 crore in the first quarter of the current year, even as revenues increased from Rs 230 crore to Rs 259 crore. Interest moderation accounted for 40 per cent of this profit increase.
VRL Logistics: The company has moderated interest across the past five quarters, signifying an unmistakable business traction. What was a Rs 15.4 crore outflow in the first quarter of 2014-15 was down to Rs 10.33 crore in the first quarter of the current year; interest cover strengthened from 3.5 to 6-plus.
IFGL Refractories: This refractory manufacturer is a company I would have been scared to touch. Supplying to the steel sector. Exporting products in a dull market. Results went through a profit squeeze in the past five quarters. Kiss of death in most books. I am beginning to change my stance. Net profit rebounded from Rs 7.8 crore in the last quarter of 2014-15 to Rs 16 crore in the first quarter of this year. The endorsement is in the interest cost: declined Rs 10 lakh to Rs 1.2 crore across the quarters, signifying a phenomenal interest cover now in excess of 20.
Deccan Cements: In a slowing economy and glut-marked sector, it takes calibre to reduce interest. The company reported an interest outflow of Rs 6.78 crore in the first quarter of 2014-15 even as it reported a net loss of Rs 4.66 crore at that time. This year, the company reported an interest outflow of Rs 5.20 crore and a profit of Rs 13.92 crore.
NCL Industries has done almost likewise.