Gujarat Ambuja Exports: June 2011 Result Review.

GAEL: 

CMP: 23

Market Cap: 317.52Cr

Sales TTM: 2038Cr

PBDIT TTM: 156.64Cr

Net Profit TTM: 94.82Cr

Debt March 2011: 233.38Cr

Reserves: March 2011: 478.71Cr

GAEL June 2011 Results are as follows:

1. The Year on Year basis is the right way to look at the results as agro processing industry is dependent on harvesting seasons so Quarter on Quarter comparison leads to wrong conclusions.  The Year-on-Year data is as follows: 

- Sales up by +30.28%

- Expenditure up by +32.47%

- Other Income down by -44.02%

- PBDIT up by +7.5%

- Depreciation down by 4.24%

- Interest up by +142.06%

- Taxes up by +7.77%

- Net Profits up by +0.15%

Observations: 

- Topline growth at 30% indicates there is ample demand for products

- Expenditure has increased more than sales(32.47%).. indicates slight input cost pressures. 

- Interest rates have increased phenomenally. GAEL has less than 10Cr of long term loans, most of the debt (233Cr) is working capital loans for GAEL, the effect of RBI high interest rate policy can be seen in GAEL's income statement.

- Depreciation has reduced which could indicate that new capacity creation is down or the high interest rate scenario is delaying capacity addition.

- Tax increase (7.77%)though higher than PBDIT (7.5%) it is a small amount. GAEL management has been conservative and has always reported higher tax outflow which results in March Quarter reporting almost Zero tax.

- Net Profit Increase has been a pittance 0.15%  Its almost symbolic in nature.

2. On a segmented basis Topline (Sales contribution of various segments)

- Agro Processing Division:  contributed 52.31% 

- Maize Processing contributed 30.51% 

- Cotton yarn contributed 16.42%

- Windmill contributed 0.76%

Observation: 

- Agro processing division has always been the largest contributor. This division has seen a 45.93% increase in sales on a Y-Y basis which is huge.

3. Profit Margins: Profit margins are a percentage of sales.. The margins for each division are.

- Agro Processing Division 2.16%

- Maize Processing Division: 17.92%

- Cotton Yarn Division: 0.81%

- Windmill Division: 72.64%

Observations: 

- Agro Processing division margins (2.16%) are better than June 2010 (0.60%) this improvement is on top of 45.93% increase in sales which is very heartening considering June & Sept are cyclically the worst quarters for agro processing division. This also indicates good demand for products of Agro processing division (cooking oil, wheat, animal feed, deoiled cakes)

-  Maize Processing Division margins at 17.92% is the same as last year (June 2010: 17.91%)

- Cotton Yarn as such has done poorly barely scraping through.

- Windmills Division looks like had a bumper "Windfall" profit margin increased to 72%

Here is another look at the data from Maize processing division. Let us see the contribution of Maize Processing division to the PBIT of GAEL.

Maize Processing division contribution to the PBIT of GAEL

- Year ending March 2010: 42.88% of profits

- Year Ending March 2011: 54.97% of profits

- Quarter Ending June 2010: 71.30% of profits

- Quarter Ending June 2011: 75.10% of profits

Observation:

- Maize Processing division has been consistently increasing its share in the profits of GAEL.

- On a Q and Q basis maize profits decreased from 27.31Cr (March 2011) to 20.21Cr (June 2011) but this is part of the business seasonality which depends on harvesting.

An important thing worth repeating from my old Blog is the Client List for GAEL 

India Client List: -ITC Limited, Amul Dairy, Heinz India,  Britannia Industries,  Dabur India,  Hindustan Lever ltd,  Parle Products,  Vadilal Industries,  Priya Gold Biscuits,  Colgate Palmolive India Ltd,  Paras Pharmaceuticals,  Goodrick Group of Companies,  Biocon Ltd,  British Biologicals,  P&G Pharmaceuticals,  Choice Laboratories,  Balsara Home Products,  JP Laboratories,  Agiomed Ltd,  Manisha Pharma Plast,  Goran Pharmaceuticals,  IPCO Industries,  Anchor Health and Beauty

Global Client List: Ellora Agro industries, Grand mills for flour and feeds, Tata Africa holdings, Katakit, Strategic foods international Co LLC, Modern Co for food products, Refined food company, National Biscuit and confectionaries co, English Biscuit manufacturers pvt ltd, Carton products ltd, Kuwait Biscuit and food manufacturers co,Omani packaging company,San Miguel foods incorporated,National company for sponge and plastics, Kuwait flour mills and bakeries co,IFFCO, MS unipex dairy products co ltd, AB Mauri lanka pvt ltd, Ceylon biscuits limited, Fooz factory for biscuits, Nizwa food industries llc, Mufindi paper mills limited, Myanma pharmaceutical industries

For the year ending March 2011 GAEL had 

- Total Sales: 1,949cr

- Export Sales: 547cr

exports is 28% of sales and 72% of GAEL's sales of 1,949Cr is domestic demand related. 

India with the largest youth population of the world and demand is something we can see by just stepping out  of the house into a shopping mall during weekends. Products like toothpaste and shaving cream consist of sorbitol a Maize Derivative supplied by GAEL to Colgate, HUL, Dabur, Balsara and Choice Laboratory.  GAEL provides inputs for everyday use products like biscuits, IceCreams, cakes, snacks, soups, ketchup and cigarettes

Conclusion: GAEL's June Quarter has been consistent.. there are signs of Interest rate and input cost pressures visible in the results. GAEL's client list includes the leaders of Indian Consumer goods industry like ITC, HUL, Colgate, Britannia, Parle, Dabur, Amul, Vadilal, Heinz, Priya Gold also the fact that only 28% of earnings are export related really makes "Exports" in the company name misleading. 

GAEL is committed to increase its capacity of Maize Derivative business, we will see higher profit margins going forward. GAEL is right now priced like a low margin commodity player .. with increased visibility (due to higher profit margins) the stock should see a re-rating.

here is a link to an old product video which is a must see. (link)
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