Mcleod Russel reported numbers which were below our estimate at the
operating level, adjusting for the provision for staff salaries (pertaining to
the first 3 quarters) taken in this quarter. While in the short term the stock
may react negatively, we would use it as an opportunity to accumulate
the stock as the outlook for tea prices in FY14F remains extremely
positive, in our view.
In-line revenue for standalone business, decent realization uptick
evident even after a higher mix of bought leaves in this quarter
McLeod Russel reported standalone sales of INR4481mn (up 10.6% y-y)
which in line with our expectation of INR4485mn. Tea production at
~21.7mn kg was 2.3mn kg higher than in Q3 FY12, split between
16.2mn kg from own garden (vs ~16.6 mn kg of tea Q3FY12; our
estimate of 18.7mn kg) and 5.8mn kg from bought leaves (our estimate
of 3mn kg). Actual sales were 24.9mn kg (0.7mn kg lower than last year)
but in line with our estimate of 24.9mn kg. We understand that the sale
of an additional 3mn kg produced versus last year will manifest in the
next quarter.
EBITDA misses our estimate driven by provision for staff wages,
higher power and fuel costs
Reported EBITDA of INR1364mn (EBITDA per kg of INR56.2) was
~10% lower than our expectation of INR1515mn (EBITDA per kg of
INR63) and Q3FY12 of INR1340mn (EBITDA per kg of INR52.3).
However had the company sold the additional 3mn kg produced versus
last year (assuming EBITDA per kg of INR50) that has been pushed to
Q4, EBITDA would have been INR150m higher than the reported
number this quarter. Apart from higher-than-expected power and fuel
costs, the operating outcome was also affected by a INR50m provision
for staff wages (pertaining to ~500 staff spread over 57 gardens) after an
agreement effective April 1 2012 ex an FX loss of ~INR35m (versus our
expectation of INR54m) ex of which adjusted EBITDA was 9% lower
than our estimate. The miss at the EBITDA level reflected at the net
level, where reported net of INR1232mn was 11% below our estimates
Overseas business: crop loss in Uganda impacts margin, Rwanda
margins robust but decline from highs in CY12, solid performance
in Vietnam
Performance in Uganda was weak on account of crop loss which
resulted in an increase in costs and thus impacted margin. Uganda
produced ~15.6mn kg of tea in CY12 vs ~16.2mn kg in CY11 (~0.6mn
kg crop loss y-y). While price increased by ~6% from USD1.94 in
CY11 to USD2.06 in CY12, EBITDA decreased by ~13% y-y (from
USD11.8mn in CY11 to USD10.3mn in CY12). EBITDA margin fell
from 38.1% in CY11 to 32.2% in CY12 (~590bps decline y-y).
Tea production in Rwanda increased from 1.9mn kg in CY11 to 2.3mn
kg in CY12. Part of this increase in production was due to McLeod’s
acquiring Gisovu Tea Company Limited, Rwanda in Feb’11.
Realization improved from USD3.4 in CY11 to USD3.68 in CY12 (~8%
y-y increase). Higher production and better realization resulted in
EBITDA increasing from USD3mn in CY11 to USD3.5mn. EBITDA
margin declined from ~59% in CY11 to ~44% in CY12.
Vietnam produced ~5.9mn kg of tea in CY12 vs 5.4mn kg in CY11
(0.5mn kg increased production y-y). Increased production, coupled
with an ~11% increase in tea realization (from USD1.75 in CY11 to
USD1.95 in CY12) in USD terms resulted in doubling of EBITDA from
USD0.8mn in CY11 to USD1.65mn in CY12. EBITDA margin improved
from 8.9% in CY11 to 15% in CY12.
Results may lead to FY13F consensus EBITDA/EPS estimates
moving down by 5-7%; remain confident around FY14F outlook
While greater clarity will emerge in the conference call on 30 January,
we believe that consensus estimates for FY13F could potentially come
down by 5-7% on the back of these results. However, in our view, the
FY14 outlook remains positive. Tea prices have remained quite resilient
globally, and we expect a strong opening tea price in April 2013 when
the new season commences.
No comments:
Post a Comment