Jindal Poly offering

The company is the only Indian player not facing anti-dumping duties by EU

Jindal Poly Films (JPFL), is coming out with a public offer aggregating up to Rs 300 crore. The issue is in a price band of Rs 360-400, a 24 per cent discount to its current price levels of Rs 495, assuming the upper band.

At the current market price, the stock is trading at about eight times its trailing 12-month P/E as compared with 15 times for Cosmo Films.

Jindal Polyfilms is the largest manufacturer of flexible packaging films. Its product range includes BOPET films, BOPP films, metallised films, POY and polyester chips for captive consumption.

The public offering is aimed at funding its expansion plans and the cost of which is pegged at Rs 650.50 crore. The expansion plans mainly consists of increasing capacity of the company's BOPET films segment (current capacity stands at 86,000 tpa).

After the installation of the new BOPET film line in March 2005, the company will have the fifth largest BOPET film manufacturing capacity in the world.

Apart from the proceeds of the public offer, the plan will also partly be funded by debt (Rs 239 crore already arranged) and internal accruals.

JPFL is the largest Indian exporter of BOPET films and enjoys a competitive advantage over its rivals, as the company is the only domestic player exporting BOPET films and not subject to anti-dumping duties by the European Union.

However, the inherent risks in this business involve the introduction of alternative packaging material by its competitors or a change in consumer habits.

Also, any imposition of an anti-dumping or anti-subsidy duties by overseas governments will adversely affect the company's exports. The company recorded a 35.76 per cent rise in net profit for FY05 to Rs 75.82 crore, while sales rose nearly 30 per cent to Rs 703 crore.

A higher turnover has helped operating profit margin expand 307 basis points to 8.42 per cent in FY05. Given the growth potential of the company, investors would be evaluating the company's forthcoming offer.

Tata Coffee

Tata Coffee has turned in good topline numbers for the quarter ended March 2005, with operating income up 28 per cent at Rs 60.59 crore. Higher pepper production, an increase in coffee prices and better sales of instant coffee resulted in the improved sales.

The operating profit at Rs 12.77 crore grew a strong 34.7 per cent y-o-y despite higher expenses on raw materials. The operating profit margin at 21 per cent , however, went up by just 100 basis points compared with Q4FY04.

That was because during the quarter, raw materials costs as a percentage of sales at 41.8 per cent were significantly higher than the 30.4 per cent in Q4FY04.

The profit before tax was up 17.6 percent at Rs 10.68 crore. A deferred tax writeback of Rs 2.22 crore has helped boost the net profit to Rs 11.35 crore, a rise of 47 per cent.

For the year FY05, the company has grown its income by just 12.4 per cent while its operating profit has seen a rise of 20.5 per cent to Rs 33.22 crore.

The operating profit margin was up at 16.5 per cent from 15.3 per cent in the previous year.

Despite raw materials costs as a percentage of sales being higher at 49.5 per cent compared with 41.8 per cent in Q4FY04, the operating profit margin improved because of a steep fall in other expenditure to Rs 35.89 crore, a drop of 18 per cent.

An extraordinary item of Rs 8.8 crore resulting from proft on the sale of investment and property, and a deferred tax writeback of Rs 2.18 crore, have helped push up the net profit to Rs 28.7 crore, an increase of 67 per cent.

Apollo Tyres

A key focus of Apollo Tyres' March quarter FY05 result was whether it would be able to to manage rising input costs, mainly rubber. The company has reported a mere 2.86 per cent growth in its operating profit (OP) for the last quarter to Rs 40.9 crore, despite net sales expanding 23.4 per cent to Rs 635.11 crore.

This sluggish growth in OP is largely due to the 26.4 per cent rise in the consumption of raw materials to to Rs 389.69 crore in the last quarter. And as a per cent of net sales, this overhead rose 149 basis points to 61.35 per cent in the last quarter.

To counteract higher input prices, Apollo Tyres had hiked prices for non-truck tyres, which constitutes about 25 per cent of its turnover, in mid Q4 FY05.

Nevertherless, a higher cost base has led operating profit margins to shrink 129 basis points to 6.43 per cent in Q4 FY05. Apollo's performance in the first nine months of FY05 was also lacklustre "" operating profit expanded a mere 1.7 per cent, despite net sales growing 12.5 per cent.

Also, operating profit margins shrank 70 basis points to 6.5 per cent. Sluggish operating margins has led this stock to underperform the Sensex over the past two months "" the stock has lost about 1.5 per cent as compared to a 5.8 per cent gain in the broader market.

Higher input costs had earlier led MRF to report a 92.88 per cent fall in its profit before tax to Rs 1.26 crore, in the March quarter.

Apollo's project in joint venture with Michelin to manufacture truck and bus radial tyres is anticipated to commence production in early 2006.

However, in the short term, an improvement in operating margins of tyre companies looks unlikely, given no signs of easing of rubber prices.

With contributions from from Sunil Nayanar, Shobhana Subramanian and Amriteshwar Mathur.