GAEL Quaterly March 2010, Annual Results March 2010

Gujarat Ambuja Exports just reported its March 2010 Quaterly Income statement.
We will analyse the same and see if we can add any value to the information available.

Point 1. Profit before depreciation interest has improved significantly. On a quaterly basis its an improvement of 9.65% (965 basis points) on a yearly numbers we can clearly see that the company has made significant improvement in operating margins 2.21% .. yes its less than the unbelieveably high 9.65% but we must understand that March 2009 quaterly results were badly impacted due to the financial collapse that occured worldwide in early part of 2009.

Point 2. Depreciation figures are also inline though the March 2010 quaterly numbers are a low 1.58% .. the yearly figures are infact slightly higher at 2.39% from last year's figures.. So the profits are not being doctored on the positive or on the negative by reducing or increasing depreciation.

Point 3. Interest payments have reduced modestly from 0.69% of sales to 0.60% of sales.. so no major changes and the reduction in interest as compared to sales is a positive for the company.

Point 4. Tax expenses have increased sharply on a quaterly basis due to losses reported in march 2009 quarter. On a yearly basis the tax payments have increased modestly by 33 basis points (0.33%). Though tax payments increase would result in reduced net profit.. it indicates that the revenue numbers are true profits.. a sharp increase in profits without an increase in tax payout could mean the results are being fudged.

Point 5. Net Profit margins for the period has increased .. and matched the annual Operating profit margin improvement.

Let us also look at the segment results available

Point 1: If you see the profit margin of the various segments.
 - Windmill division - 60.11%
 - Maize Processing Division - 12.15%
 - Other Agro Processing Division - 5.18%
 - CottonYarn Division - 1.81%
Windmill division has the largest profit margin and 2nd largest profit margin is in the Maize processing divisio with 12.15%. Other Agro Processing division comes a distant 3rd with 5.18% and last of all is the Cotton yarn division with 1.81%

Point 2: Maize processing division margins have improved significantly over the past year from 7.34% to 12.15% in March 2010. Other divisions have not seen much change in profit margins as compared to last year.

Point 3. Maize processing division sales as a percentage of overall company sales/revenues has increased in march 2010 to 23.94% from 13.47%. an increase of 10.47%
At the same time the "Other Agro processing division" segment revenues as a percentage of overall company revenues has fallen by 12.24%

The segment revenues show us that the Maize processing division has been improving its margins and also is taking a larger share of GAEL annual revenues.

Company has had an overall increase in its operating profit margins of 2.21%. Margin expansion has happened as revenues of GAEL have shifted to better margin "Maize processing division". The poor results base of March 2009 (due to worldwide financial crisis in 2009 which impacted march 2009 results) also played a part in the net profit jump of 109.04%.

The company valuations are as follows:
CMP: 22.15
Market Cap: 306.45Cr
Sales March 2010: 1410.60Cr
Profit Before Depreciation,Interest and taxes : 111.05Cr
Depreciation: 33.76Cr
Taxes: 23.28Cr
Net Profit: 49.28Cr
EPS: 3.56

Conclusion: GAEL is still grossly undervalued. We can expect the company to announce another 40 paisa divident in 2nd half 2010 taking the total divident payout for 12 months to 80 paisa per share. Divident yield: 3.61%. lower most target Market Cap of GAEL is 492.8Cr (Target Share price:  35.6 per share)


Please note this is the lower most target level for GAEL stock. we can expect GAEL stock price to do much better as revenues and margins for maize processing division is increasing. With proper set of positive news flow and increased investor participation GAEL can reach its ideal stock price of 100+ .