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Volume, realisation increase boosts sales…
Jayshree Tea reported strong Q2FY11 numbers with the topline
growing by 26.5% to Rs 138.3 crore as against Rs 108.4 crore in Q2FY10.
The jump in sales was on the back of an increase in volumes as well as
realisations. EBITDA margins dipped to 25.2% from 29.3% due to the
higher employee cost as well as increased sales contribution from
bought leaf. Other income increased by 189% to Rs 14.8 crore from Rs
5.1 crore in the corresponding quarter on account of investment income
and subsidies on the fertiliser business. Net profit increased by 33.4% to
Rs 44.2 crore as against Rs 33.2 crore in the corresponding quarter led
by higher EBITDA and other income.
Operational highlights
The company sold 10.5 million kg of tea with average realisation of
~Rs 131 per kg. The realisation increased in Assam and Darjeeling
as extreme weather conditions resulted in a production decline in
North India. The company produces 25% of its tea from Assam and
5% from Darjeeling. However, higher exposure to southern India
resulted in a dip in margin on a half yearly basis. We believe the
company would be able to sell 24 million kg this year, which would
be higher than the 22.7 million kg the company has sold in FY10.
Valuation
At the CMP of Rs 195, the stock is trading at 6.0x its FY11E EPS of Rs 32.3
and 5.6x its FY12E EPS of Rs 34.7. With global production increasing
significantly due to the increased production levels in Kenya and Sri
Lanka, global sugar prices have softened in the last quarter. However,
domestic prices have increased as production disruptions were seen due
to pest attack and extreme whether conditions in the last quarter. We
believe domestic prices will remain firm till December but higher global
production next year can result in a softening of prices post December.
Therefore, we have valued the stock at 6x its FY11E EPS of Rs 32.3 with a
target price of Rs 193.
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