The company is expanding capacity at a cost of Rs 500 crore - capacity for steel forging will be increased 85 per cent to 2.4 lakh tonnes while that for crank shaft and front axle machining will be improved 60 per cent and 150 per cent respectively. Much of this additional capacity is pre-sold.
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| Bharat Forge's domestic operations enjoy higher margins as compared to its overseas business and exports. This is expected to drive topline growth.
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| This could also mean that going forward, margins could come under even more stress. However, the continuing growth in foreign markets as well as the increasing outsourcing opportunities should prove a boon.
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| Though the stock is trading at a tailing 12-month P/E of 33.03, an estimated earnings growth of 60 per cent for the next two years continues to make it attractive.
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HPCL
Plant shut-down hits operating profit
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Refining and marketing company Hindustan Petroleum posted a decent rise in sales coupled with a decline in net profit.
| HPCL | | (Rs crore) | Q4FY05 | Q4FY04 | % change | | Net sales | 16383.00 | 14553.00 | 12.57 | | Other income | 116.00 | 147.00 | -21.09 | | Operating profit | 456.00 | 865.00 | -47.28 | | OPM (%) | 2.78 | 5.94 | - | | Net profit | 500.00 | 527.00 | -5.12 | | NPM (%) | 3.05 | 3.62 | - | | EPS (Rs) | 14.75 | 15.55 | - | | Trailing 12-month P/E | 8.98 |
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Operating profit fell dramatically due the shut-down of a plant for a brief period during the quarter. The dip in net (5.12 per cent) would have been far more but for the write-back in taxes.
Sales were up 12.57 per cent, driven by the growth in volumes. Market sales were 5.12 mmt compared to 5.18 mmt.
Operating profit was down 47.28 per cent as earnings from refining operations were hit by the plant shut-down. Crude throughput declined 8.86 per cent to 3.19 mmt.
Refining margins were down at $5.3 per barrel compared to $7.2 per barrel in the previous quarter.
The company made a inventory gain of around Rs 100 crore, pretty much the same as in the previous quarter.
Marketing margins were in the positive territory, and were the best in the quarter, considering the full year. But losses on account of subsidies for LPG and kerosene totalled Rs 910 crore compared to Rs 720 crore.
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| The deterioration in operating performance was pretty much on expected lines. Actually, analysts were pleasantly surprised by the hefty tax write-back (Rs 131 crore) which arrested the fall in net to some extent. Going forward, analysts expect refining margins to hover around the current levels.
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| Which way the company's earnings and stock price will move will depend on crude prices. With oil prices dilly-dallying and no clear-cut government policy on petro product pricing, shares of all oil marketing companies, including HP, will remain fickle.
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| Currently, the stock trades at Rs 338.3 - 8.98 times it trailing 12-month earnings of Rs 37.69.
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LARSEN & TOUBRO
Growth in E&C segment drives profit
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India's largest engineering company, Larsen & Toubro reported a 16.61 per cent rise in net profit during Q4FY05, on top of a 20.75 per cent rise in net sales. The improved performance has been driven mainly by the strong growth in the engineering and construction (E&C) segment.
| Larsen & Toubro | | (In Rs Cr) | Q4FY05 | Q4FY04 | % change | | Net sales | 4257.29 | 3525.64 | 20.75 | | Other income | 125.69 | 158.93 | -20.91 | | Operating profit | 399.67 | 279.98 | 42.75 | | OPM (%) | 9.39 | 7.94 | - | | Net profit | 333.68 | 286.16 | 16.61 | | NPM (%) | 7.84 | 8.12 | - | | EPS (Rs) | 25.69 | 23.00 | - | | Trailing 12-month P/E | 16.33 |
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| However, a 20.91 per cent decline in other income led to a slower bottomline growth. The E&C segment recorded revenues of Rs 3,771 crore, representing a growth of Rs 21 per cent. Export sales in this segment amounted to Rs 687 crore.
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| The company has a healthy order backlog of Rs 17,604 crore as on March 31, 2005. The E&C segment contributed 88.57 per cent to net sales. Of the new orders booked during FY05, 32 per cent is from the infrastructure sector and 21 per cent is from the hydrocarbon sector; power and process equipment sectors together contributed 21 per cent.
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The electrical and electronics division reported a 14.16 per cent growth during the quarter to Rs 357.40 crore. Revenues from the segment amounted to 8.39 per cent as a percentage of net sales.
There was a 38.60 per cent rise in raw material costs to Rs 1421.05 crore while expenditure on construction materials went up by nearly 132 per cent to Rs 726.37 crore.
Operating margins improved by nearly 150 basis points to 9.39 per cent while net margins declined marginally to 7.84 per cent as the tax outgo increased 10 per cent to Rs 165.05 crore.
For FY05, the company reported a 36.92 per cent rise in net sales to Rs 13,091.82 crore. Net profit was up 18.44 per cent to Rs 631 crore, after excluding an exceptional income of Rs 353 crore relating to the sale of shares in UltraTech Cement which it acquired from Grasim.
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| With the thrust on infrastructure development expected to continue, L&T is set to benefit further going forward. Analysts say the company's financial and execution capability lends it a competitive advantage over peers.
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| Also L&T's diversified product and services basket reduces sector specific risks. The stock is trading at a 12-month trailing P/E of 16.33, which is considered to be attractive.
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ITC
Non-tobacco businesses disappoint
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ITC's fourth-quarter results seem a mixed bag. The company reported strong operating profit growth in cigarettes, but it was marred by sluggish cigarette sales. All the non-tobacco businesses, barring hotels, posted disappointing numbers.
| ITC | | (Rs crore) | Q4FY05 | Q4FY04 | % change | | Net sales | 2177.11 | 1881.94 | 15.68 | | Other income | 59.32 | 56.22 | 5.51 | | Operating profit | 663.22 | 538.75 | 23.10 | | OPM (%) | 30.46 | 28.63 | | | Net profit before exceptionals | 417.42 | 387.06 | 7.84 | | Exceptional income | 354.33 | - | | | Net profit | 771.75 | 387.06 | 99.39 | | EPS (before exceptionals) | 16.72 | 15.61 | - | | EPS (after exceptions) | 30.91 | 15.61 | - | | Trailing 12-month P/E | 21.29 |
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Overall, sales grew 15.68 per cent while net profit before exceptional income grew 7.84 per cent. The huge one-time write-back of Rs 1,365 crore, thanks to the favourable verdict in the luxury tax case, did not trickle down entirely to the bottomline as the company utilised it for certain pending provisions.
Cigarette sales were up 6.41 per cent, backed by a modest 5 per cent growth in volume. However, operating profit from the segment was up 20.77 per cent as margins improved by 266 basis points.
Revenues and profits from hotels were up significantly post-amalgamation with subsidiary ITC Hotels with operating margins increasing to 31.37 per cent from 23.56 per cent.
Profit from papers slipped despite healthy growth in sales while that from marginal businesses suffered though they did not make a significant difference to overall profitability.
Profit from agri-business was down to a trickle (from 23.58 crore to Rs 2.52 crore) while the company incurred higher losses on other consumer businesses (Rs 68 crore compared to Rs 61 crore).
For the full year ITC ended with a sales growth of 18 per cent and a net profit growth of 15.33 per cent (before exceptional items).
Of the total one-time write back of Rs 1,365 crore due to the victory over the luxury tax case, Rs 673 crore was used to provide for certain pending excise claims, restructuring costs and mark-to-market loss on investments. Net of taxes, the exceptional income was a mere Rs 354 crore. The brighter side, however, is that the balance-sheet is a lot healthier and contingent liabilities, which stood at Rs 337 crore, are down from Rs 1,366 crore a year ago.
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| The company surprised the markets, announcing that it would consider a bonus issue and a split of its shares. It's increased dividend by 55 per cent to Rs 31 per share.
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| At the current price of Rs 1570, ITC trades at 21 times FY05 earnings. The stock has been re-rated substantially over the past year, following the favourable outcome on legal issues. Expectations of higher pay-outs and a strong operating performance has also helped the stock. Analysts continue to favour the stock, despite the run-up. |
