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Sunday, January 31, 2010

Camlin Fine Chemicals: Review Dec 2009 Quaterly Results

Camlin fine Chemicals has published the Unaudited Dec 2009 Quaterly results. Following are some of the salient points.
Dec 2009 (Dec 2008) in Lacs
Gross Sales :                3436.67 (2291.36)   - UP   49.98%
Profit from Operations:   237.68   (187.29)   - UP   26.90%
Profit Before Tax:           141.31     (57.66)   - UP 145.00%
Tax :                                96.42     (18.44)   - UP 422.90%
Net Profit:                        44.89     (39.22)   - UP   14.45%
As can be seen topline growth is approximately 50% bottomline growth is 14.5% and taxes have increased by 423%. The sharp increase in taxes has skewed the bottomline. Profit before taxes was 145% which is much better than the topline growth of 50%.

Let us also look at margins with respect to sales.

1. Profit from operations as a percentage of sales has reduced from 8.39% (Dec2008) to 7.13% (Dec 2009) which is because of increase in expenses from 91.61% (Dec 2008) to 92.87% (Dec 2009).
- If we look at 9 months figures we can see that the expenses are down from 89.55% (Nine months ended Dec 2008) to 89.42% (Nine Months Ended Dec 2009).
- We can hereby conclude that the expenditure/Costs have been increasing at a higher level and have accelerated in the last Dec 2009 quarter. The overall costs are still below the Annual March 2009 numbers (89.76%)

2. Other Income has increased substancially from 0.87% (Dec 2008) to 1.35% (Dec 2009) since it is a small component of total sales the Profit before Interest & Exceptional Item has improved (8.48%) but still below Dec 2008 (8.98%) levels

3. Interest payments have dropped by 240bps from 6.67% (Dec 2008) to 4.24% (Dec 2009). The govt Low interest rate regime has definitely helped the company in increasing profits which can be seen in a 220 bps increase in Profit After Interest but before exceptional items.
- One must remember Dec 2008 was the peak of the financial/credit collapse so 6.67% of sales can be considered as a high water mark for interest payment ratio.

4.  Sharp increase in taxes paid from 0.83% (Dec 2008) to 2.89% (Dec 2009). This increase in taxes has reduced the profit after tax numbers. Which should have been much higher ideally.

Conclusion: Camlin Fine Chemicals has a topline growth of close to 20% (Nine months) and can be expected to reports 120Cr of topine for year ended March 2010. Looking at the increase in expenditure cost of 120bps, costs have to be contained in the future. End of low interest regime with the hike in CRR signals that cost management and cash flow management is going to be critical for a sustained growth in topline and bottomline.
- Companies plan to have a rights issue soon would help reduce the risks of interest rate hike.
- The high level of tax payment considering that fact that the company was expecting Export Oriented Unit (EOU) status for its plant could signal that the profit growth is being tempered down to reflect a more consistent sequential number. This might also help in pricing the rights issue for the company by reporting higher sequential profits.
- Investment can be considered at this level (CMP: 92.60 Market Cap: 53.81Cr) for a long term basis(2+ years). The company has strong promoter group interest, low instittutional holding, listing only in BSE and fair valuations for a market leader. Ideally the stock would be valued at a market cap close to 1 times sales.  

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