A decline in interest and finance charges also helped the company hold up its net profit - interest charges dropped 54 percent to Rs 40.08 crore.
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| Analysts expect the pressure on margins from higher fuel costs to continue. The company may witness only single digit growth rate for the next two years, considering input price pressures and lower tariffs. For FY06, an earnings per share of Rs 30 can be expected - a rise of 8.5 per cent.
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| At the current price of Rs 374.15, the stock trades at an earnings multiple of 12.47 times its FY06 earnings (trailing P/E of 13.44 times).
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MAHINDRA & MAHINDRA
Raw material expenses dampen performance
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Mahindra & Mahindra's results for the quarter ended March 2005 were unimpressive. Revenues grew 27.32 per cent, lower than the 36.9 per cent growth in the nine months till December 2004.
| M&M | | (Rs crore) | Q4FY05 | Q4FY04 | % change | | Sales | 1910.68 | 1500.71 | 27.32 | | Other income | 40.63 | 25.0153 | 62.4 | | Operating profit | 210.85 | 171.3157 | 23.08 | | OPM (%) | 11.04 | 11.42 | -38 bps | | Net Profit | 152.66 | 145.64 | 23.08 | | NPM (%) | 7.99 | 9.7 | -171 bps | | EPS (Rs) | 13.16 | 12.55 | 23.08 | | Trailing P/E | 11.62 |
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Moreover, operating profit growth stood at 23.08 per cent, less than half the growth of 52.3 per cent recorded in the nine months till December 2004.
Raw material expenses (excluding the impact of changes in inventory) jumped 350 basis points as a percentage of sales, thanks to higher steel prices.
The impact of higher steel prices was mainly felt in the farm equipment (tractor) business, EBIT margins of which plummeted to 8.4 per cent last quarter, from 13.7 per cent in the year-ago quarter.
The automotive segment did much better - its EBIT margin jumped 250 basis points.
Other expenses jumped by 310 basis points as a percentage of sales, which came as a surprise since these expenses had fallen by 240 basis points as a percentage of sales in the nine months till December 2004.
Despite raw material and other expenses increasing by 650 basis points, M&M's operating margin fell just 38 basis points. This was because a huge variation in inventory changes in the two periods. Inventory changes alone accounted for a 500 basis points saving in margins. The company also managed a 110 basis points saving on staff costs.
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| For the whole year, M&M reported a 73 basis point improvement in operating margins, which is quite an achievement, considering that margins of most auto companies have fallen because of raw material cost pressures. But going by the trend in the past two quarters, raw material expenses seem to be catching up with M&M.
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Needless to say, earnings growth in FY05 will be far lower than the 70-odd per cent growth recorded last fiscal. The price of M&M's stock, which trades at 11.6 times trailing earnings, already factors that in.
COLGATE PALMOLIVE
VAT and rise in costs impede bottomline growth
Oral care company, Colgate Palmolive reported rather disappointing results for Q4FY05. Net profit was down by 11.83 per cent at 32.34 crore, though the company managed to increase sales by 3.85 per cent to Rs 240.04 crore.
| Colgate | | (Rs crore) | Q4FY05 | Q4FY04 | % change | | Net sales | 240.04 | 231.14 | 3.85 | | Other income | 12.57 | 5.7 | 120.53 | | Operating profit | 42.72 | 46.61 | -8.35 | | OPM (%) | 17.8 | 20.17 | -237 bps | | Net profit | 32.34 | 36.68 | -11.83 | | Net margin | 13.47 | 15.87 | -240 bps | | EPS (Rs) | 2.38 | 2.7 | -11.85 | | Trailing 12-month P/E | 27.96 |
The impact of VAT and the increase in costs in key segments have impeded bottomline growth.
The company's operating profit was down 8.35 per cent to Rs 42.72 crore. Even after adjusting for the extraordinary VRS expense of Rs 1.10 crore last quarter, operating profit was down 6 per cent.
Though the company did well to control raw material and packing costs by 17.93 per cent and staff costs by 3.84 per cent, there was a nearly 15.20 per cent rise in the cost of advertising and purchase of goods. The expenses under these two heads have also gone up as a percentage of sales.
The company's operating margins also took a dip of 240 basis points to 17.80 per cent. Net margins, too, saw a similar decline.
For FY05, the company posted a 4.90 per cent rise in net profit at Rs 113.29 crore, while net sales rose 2.67 per cent to Rs 964.22 crore. Overall FY05 performance has been impressive when considering the fact that the company recorded a 14 per cent growth in its toothpaste brands, increasing its market-share to 50.40 per cent. The overall market growth during the year was 9 per cent.
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| Despite the dull performances for Q4FY05, analysts remain positive about Colgate's prospects going forward. The increasing share in the toothpaste segment augurs well for the company which is expected to launch more products in the category. This should help increase market-share. The recent 5 per cent price hike in toothpastes will also aid margins. The company's Baddi (Himachal Pradesh) plant was commissioned in April 2005, and is expected to be stable by August 2005.
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| This plant is expected to drive further cost savings, with the full effect being visible in FY07. The stock currently trades at a 12-month trailing P/E of 27.96.
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TATA CHEMICALS
Improved realisations drive profit growth
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Tata Chemicals registered a spectacular increase in its net profit for Q4, driven by better realisations and robust sales volumes. Net profit grew at an astounding rate of 274.81 per cent to Rs 111.13 crore on the back of improved sales.
| Tata Chemicals | | (Rs crore) | Q4FY05 | Q4FY04 | % change | | Net sales | 719.56 | 565.16 | 27.32 | | Other income | 11.55 | 5.53 | 108.86 | | Operating profit | 133.38 | 74.33 | 79.44 | | OPM (%) | 18.54 | 13.15 | 539 bps | | Net profit | 111.13 | 29.65 | 274.81 | | NPM (%) | 15.44 | 5.25 | 1019 bps | | EPS | 5.16 | 1.38 | 274 | | Trailing 12-month P/E | 11.51 |
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Sales increased 27.32 per cent to Rs 719.56 crore. Growth in volumes, improved realisations across all products and the rise in the price of soda ash cushioned the impact of an increase in raw material prices.
Improvement in profits can also be attributed to an increase in tax refunds, a reduction in interest costs and lower tax charges due to reduced tax rates. Tax charges dropped 92 per cent to Rs 0.89 crore.
Inorganic chemicals segment posted a rise in income of 21.5 per cent to Rs 319.65 crore, boosted by price increases. EBITDA of the segment rose 94.8 per cent to Rs 69.45 crore while margins improved 800 basis points to 21.7 per cent. Soda Ash has been the major driver for the growth in the segment, with its capacity utilisation increasing to 91 per cent and sales amounting to 144,000 million tonnes.
The fertiliser division, too, performed well, with a 30 per cent increase in revenue to Rs 399.91 crore as the government sought additional volumes. The segment's EBITDA surged 245 per cent to Rs 48.59 crore while margins improved 756 basis points to 12.15 per cent. Urea, whose sales jumped over 14 per cent, continues to be the major driver for the division's growth.
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| The demand for the soda ash business, especially from the glass segment, remains strong both domestically and globally. Increased prices will continue to support revenues while prices of inputs like coke and coking coal are expected to remain steady.
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| Demand for urea is expected to remain firm and a good monsoon will enhance demand further. The company is expected to post an EPS of about Rs 22-23 for FY06. Given the current price of Rs 182.25, the stock trades at a P/E of 8.1 times its FY06 earnings (trailing P/E of 11.51 times). |
