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Ruchi Soya’s 2QFY12 results were below our estimates - (net income of
Rs37.8mn was down 94% both y-y and q-q). Higher raw material cost
and sharp depreciation of the Indian rupee (vs the USD) led to a drop in
earnings. Though the stock is currently trading at 11x CY12F earnings,
1H12 standalone now forms only 26% of our full-year numbers, and we
think there is a downside risk to our FY12F estimates. These weak
results continue the trend we have seen in global supply players (weak
trading conditions), and we see some negative reaction to stock price.
Lack of bargaining power and unhedged forex exposure hurt 2Q12
Management commented that the quarter was impacted by higher raw
material prices (as we noted for Mewah, companies with large
downstream operations were unable to pass on higher raw material
prices to consumers), volatility in commodity prices and mark-to-market
(MTM) provisions due to a steep fall in the USD-INR exchange rate. The
company made an unrealized loss provision of Rs849mn on restatement
of USD borrowings of which ~Rs420mn is MTM loss on loans payable
during the next 2 years, ~ Rs220mn is forward contract losses for which
physical contracts are not executed and Rs170mn loss due to unhedged
exposure. In our view, some portion of MTM losses may be reversed if
the Indian rupee strengthens vs the USD in coming periods, but we do
not treat it as part of exceptional income. On the positive side, utilizations
improved and plantation momentum remained strong. As a result,
management expects 2H12F earnings to be more comparable to 2H11
earnings.
Other key takeaways from management:
Total revenues grew by ~60% y-y and 3% q-q mainly due to strong
growth in the Oil segment (up 75% y-y and ~2% q-q). Segment-wise,
the Oil segment recorded negative EBIT of Rs363mn with EBIT
margin of -0.7% during the quarter, due to most of the adverse impact
of exchange rate movements being in this segment.
Management expects soya crop for the current season (11mn vs
9.5mn) to be better than the previous year and higher capacity
utilization of soya crushing operations.
Capacity utilization of crushing facilities increased from 36% to 41%.
Capacity utilization of refining facilities increased from 76% to 82%
from year ago. While port-based refiners are running at 90%+
utilizations.
Branded sales have gone up by 50% from Rs9,308mn to
Rs13,972mn.
Current palm plantings are at 37,000ha - mgmt says they should be
able to reach 40,000ha by FY12F, and at least 10,000ha per annum
thereafter.
2Q12 tax rate was high at ~63% vs ~35% tax rate during same period
in previous years.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Ruchi Soya’s 2QFY12 results were below our estimates - (net income of
Rs37.8mn was down 94% both y-y and q-q). Higher raw material cost
and sharp depreciation of the Indian rupee (vs the USD) led to a drop in
earnings. Though the stock is currently trading at 11x CY12F earnings,
1H12 standalone now forms only 26% of our full-year numbers, and we
think there is a downside risk to our FY12F estimates. These weak
results continue the trend we have seen in global supply players (weak
trading conditions), and we see some negative reaction to stock price.
Lack of bargaining power and unhedged forex exposure hurt 2Q12
Management commented that the quarter was impacted by higher raw
material prices (as we noted for Mewah, companies with large
downstream operations were unable to pass on higher raw material
prices to consumers), volatility in commodity prices and mark-to-market
(MTM) provisions due to a steep fall in the USD-INR exchange rate. The
company made an unrealized loss provision of Rs849mn on restatement
of USD borrowings of which ~Rs420mn is MTM loss on loans payable
during the next 2 years, ~ Rs220mn is forward contract losses for which
physical contracts are not executed and Rs170mn loss due to unhedged
exposure. In our view, some portion of MTM losses may be reversed if
the Indian rupee strengthens vs the USD in coming periods, but we do
not treat it as part of exceptional income. On the positive side, utilizations
improved and plantation momentum remained strong. As a result,
management expects 2H12F earnings to be more comparable to 2H11
earnings.
Other key takeaways from management:
Total revenues grew by ~60% y-y and 3% q-q mainly due to strong
growth in the Oil segment (up 75% y-y and ~2% q-q). Segment-wise,
the Oil segment recorded negative EBIT of Rs363mn with EBIT
margin of -0.7% during the quarter, due to most of the adverse impact
of exchange rate movements being in this segment.
Management expects soya crop for the current season (11mn vs
9.5mn) to be better than the previous year and higher capacity
utilization of soya crushing operations.
Capacity utilization of crushing facilities increased from 36% to 41%.
Capacity utilization of refining facilities increased from 76% to 82%
from year ago. While port-based refiners are running at 90%+
utilizations.
Branded sales have gone up by 50% from Rs9,308mn to
Rs13,972mn.
Current palm plantings are at 37,000ha - mgmt says they should be
able to reach 40,000ha by FY12F, and at least 10,000ha per annum
thereafter.
2Q12 tax rate was high at ~63% vs ~35% tax rate during same period
in previous years.
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