Triveni Engineering: Stagnant sugar sales

Turbine and sugar player's operating profit margin fell from 13.1% in September 2006 to 1.6% this year

For sugar and turbine player Triveni Engineering, the September quarter has turned sour, especially with the sugar business continuing to make losses and revenues from turbines lower on a y-o-y basis.

The share price, which had more than doubled in the past three months, slipped 3 per cent on Thursday along with the other sugar stocks.

Triveni has presence in turbine, gears and water treatment businesses also, which is a positive as the company's dependence on a cyclical business like sugar reduces.

The topline increased by 5.4 per cent in the September quarter to Rs 304 crore, with stagnant sales in sugar revenues. Turbine revenues were lower by 19.8 per cent due to cyclicality in dispatches.

However, the management said that the turbine revenues were an aberration and the order book is healthy. Operating profit margin fell from 13.1 per cent in September 2006 to 1.6 per cent this year. The growth in revenues has come from cogen and the others segment comprising gears and water.

Cogen brought in almost Rs 10 crore of revenues from Rs 1.5 crore a year earlier. Water is growing at 100 per cent a year, so revenues of the others segment was up nearly 70 per cent.

These two segments contributed nearly 16.8 per cent of sales in September quarter against 8.9 per cent a year ago.

The other non-sugar businesses are also doing well. Sugar prices, which are expected to remain weak in the near-term due to piled up stocks, will improve next year.

Share prices of most sugar companies have gone up on expectation that they will return to profitability over the next few quarters. However, at current prices, the sector appears expensive.

Apollo Tyres: Tracking profits

Apollo Tyres reported an improved performance in the September 2007 quarter as average rubber prices were lower on a y-o-y basis. In addition, the company leveraged improved exports in the last quarter, coupled with strong growth in the domestic radial tyre market.

As a result, the company's standalone operating profit grew an impressive 80.7 per cent y-o-y to Rs 107.9 crore in Q2 FY08, while its net sales rose 10 per cent to Rs 844.3 crore.

Also, as the average price of rubber in the September quarter was Rs 84.2 per kg, 7 per cent lower y-o-y, it helped its operating profit margin improve 500 basis points to 12.8 per cent in Q2. For a tyre company, rubber as a percentage of net sales, typically constitutes about 60-65 per cent.

Meanwhile, Apollo Tyres' subsidiary Dunlop South Africa reported sales of Rs 240.5 crore in the September quarter, 25.7 per cent lower y-o-y as its operations had been shut for a few days, though operating margins improved by 370 basis points to 12 per cent y-o-y in Q2.

Going forward, the direction of rubber prices will continue to play a crucial role in determining Apollo Tyre's profitability. At Rs 36.25, the stock trades at 11 times estimated FY08 earnings.