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Saturday, June 02, 2012

Gujarat Ambuja Exports: March 2012 Year End Result Review

Gujarat Ambuja Exports reported its year ending March 2012 results on May 21,2012.

1. Year on Year..
- Sales have increased by 8.92%
- Expenditure has increased by 11.77% (Includes Forex loss of 4.34Cr for full year.. Q4 there was a forex profit of 11.23Cr)
- Profit Before Depreciation Interest and Taxes has decreased by 56.65% (Margins have contracted from 7.42% (2011) to 5% (2012) as percentage of sales)
- Interest expenses increased by 66.50%
- Taxes reduced by 56.78%
- Net profit was down 47.18% (PBDIT was down 56.65% and net profit was down only 47.18% so there is a 9.47% +ve difference between PBDIT and Net Profit)

2.  PBDIT Margins have contracted as percentage of sales from 7.42% (2011) to 5% (2012) this is a cause of concern..
- though interest payments have increased by 66.50% (Y-Y) as percentage of sales.. interest payments are less than 1% which is still manageable and due to the managements clear intentions to maintain Zero long term debt levels..
I must add that GAEL is an agro processing major which procures raw material during harvest season when its cheapest.. and then the agro products are further processed during the year. Short term loans are taken from banks during the harvest season and paid backin the next 6-12 months.. Interest rate hike by RBI has impacted GAEL by increasing its interest costs by 66.50% (Y-Y)

3 GAEL has 4 divisions. - cotton yarn, - maize processing, - agro processing, - Windmill
- Cotton yarn division seems to be the culprit.. reporting -26.02cr Net profit(+11.29cr 2011) .. which means cotton yarn division itself has a profit impact of 26.02 + 11.29 = 37.31cr. (Y-o-Y)
- Maize processing division also has had a sharp fall in profits as well as profit margins..
Profit margins:- 12.57% (2011:-20.22%)
Profit impact on 2012 profits is 25.81Cr (Y-o-Y)
The uttarakhand maize processing plant had a tax free period which could have come to an end and hence we are seeing profit margins contract.. so going forward the maize processing division profit margins might remain around 12.57% is my understanding. 
Karnataka plant might get tax breaks.. which could help in increasing margins once again. (Lets hope)
- Agro Processing division has seen its profit margins expand.to 4.24% (March 2011:-3.65%) this had a positive impact on net profit of 12.85Cr (Y-o-Y)
- Wind mill division  has a small but consistent contribution of 4.46Cr.

Current Assets:- 609.38Cr (528.11Cr-2011)
Current Liabilities:- 531.51Cr (431.26Cr-2011)
Net Current Assets:=>>> Current Assets - Current Liabilities =  77.87Cr (96.85Cr-2011)

A drop in "Net Current Assets" indicates that the management has been active in improving capital efficiency by holding back lenders (Increasing Liabilities) and reducing advance payments to creditors (Decreasing Current Assets)
Net Current Assets:- 77.87Cr (96.87Cr-2011) indicates a reduction in working capital requirement even as sales have increased or remained consistent... a big positive.

Conclusion:- GAEL has reported a drop in profits of 47.18% even as sales have remained constant. a dig down indicates.. drop in profits due to Cotton yarn division and margin decrease in maize processing division.. Maize processing division margin drop could be permanent as uttarakhand maize division was enjoying tax incentives which are set to expire(my opinion)...  
Net Current Assets have reduced which indicates the management is in control and taking steps to improve the health of the company.. 
GAEL is doing just fine and accumulating wealth for its investors.. but one must remember the global investment climate is turning out to be long term negative.. my personal opinion is further expansion plans should only be done after careful review.. its best to accumulate financial assets (cash) as some "not so well managed" company assets might be available cheap for taking..

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