| The increased proportion of low-margin value retailing ""which now accounts for 65 per cent of revenues""- as also higher expenses on account of employees have eaten into margins. Revenues have been driven by a near 100 per cent growth in value retailing, while the lifestyle segment grew a more sedate 25 per cent. |
| Operating profit has jumped to Rs 38.5 crore, up 58 per cent y-o-y. However, with value retailing segment commanding margins of less than 8 per cent compared with 13 per cent for the lifestyle segment, margins were under pressure. |
| With 3.5 million square feet across formats, a target of 8 million square feet by 2008, and a string of strategic relationships with vendors, Pantaloon is a good play on the fast-growing retail sector. |
| The company is adding speciality formats through joint ventures, such as consumer durable stores, increasingly catering for a higher share of the consumer's wallet. |
| Also, Pantaloon is developing real estate across the country and has also entered into a joint venture with CapitaLand to enter the retail mall management business. |
| While Pantaloon should continue to maintain its aggressive pace of growth, competition from Reliance and Bharti is cause for concern, especially since manpower costs would increase. |
| At the current price of Rs 1900, the stock trades at an expensive 69 times estimated FY06 earnings (year ending June) and 43 times estimated FY07 earnings and factors in most of the growth in the near future. |
| Century Textiles: Cementing gains |
| In Q4 FY06, Century Textiles' cement division's 16.8 per cent q-o-q sales growth helped the company post 5.4 per cent improvement in its revenues. All the other divisions posted a decline in their top line. |
| As total expenditure increased only 4.3 per cent, operating profit improved by 15.25 per cent q-o-q to Rs 78.74 crore in the March 2006 quarter. Textile revenues fell by 6.7 per cent despite lower cotton prices. Paper and pulp revenues also declined 2.4 per cent, though paper prices have been on an upswing. |
| Textile division also made a segment loss of Rs 11.24 crore. |
| The company's future is hinged on the performance of cement, which accounts for 55 per cent of total revenues. Also, the company is reducing output at its loss-making Mumbai mill, and setting up a new mill in Gujarat. |
| The Mumbai property is expected to be sold or developed. With a strong real estate story buoyed to some extent by the capex in the cement business, the Century Textiles stock trades at a huge 53 times FY06 EPS. |
| BEML: Under pressure |
| Bharat Earth Movers has reported a lacklustre performance for FY06. Operating profit fell 3 per cent y-o-y to Rs 231.76 crore in FY06, despite net sales expanding 18.7 per cent to Rs 2056.49 crore. Also, operating profit margin slipped 255 basis points y-o-y to 11.23 per cent in FY06. |
| Analysts say the pressure on operating margins in the last financial year was owing to an expansion of its lower margin railway division coupled with an increase in raw material costs. |
| Hence, it was not surprising that the stock has been an underperformer over the past four months - it has gained merely 10.4 per cent compared with 30.6 per cent gain in the Sensex. The company was able to enhance supplies of earthmoving equipment in the last year, thanks to strong demand from key customers such as Coal India, steel and cement companies. |
| However, the company had to grapple with its adjusted raw material costs as a proportion of net sales rising 685 basis points y-o-y to 64.85 per cent in the year ended March 2006. In the March 2006 quarter too, the company's operating margin fell a staggering 1080 basis points y-o-y to 13.1 per cent. |
| Sentiment for the stock is expected to be governed by the extent of dilution and the pricing of the planned follow-on issue. At the current price of Rs 1462, the stock currently trades at about 24 times estimated FY07 earnings. |
| With contributions from Shobhana Subramanian and Amriteshwar Mathur |
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