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Sunday, August 10, 2014

Jayant Agro:Quarter 2014: Result Review

Jayant Agro results for quarter ending June 30,2014 is out. Let us review the results with horizontal (Y-Y)and vertical (% Sales)  comparision

Horizontal Comparision:
Jayant results are seasonal in nature due to castor seed being the primary raw material which is agro based input.. year on year comparision is the best option. Comparing the "Quarter June 2014 to  Quarter June 2013" results we get the following observation

Total Income from Operations: UP 14.88% (Positive)
Sales on a Y-Y basis has increased which is a positive development.

Total Expenses:                        UP 15.72% (negative)
- Cost of Material:                      UP 12.81% (positive)
- Purchase of Stock in Trade:      UP 49.59% 
- Change in Inventory of Finished Goods: UP 33.45%

Total Expenses are up 15.72% which is more than rate of increase in income (14.88%) so that's a negative development as costs(expense) has increased at a higher rate than sales increase eating into profits..
Sales increase: 14.88%
Expense increase: 15.72% 
Difference: 0.84%
Digging deeper into Expenses.. "Cost of Material" is up 12.81% which is positive as increase in "cost of material" is less than increase in sales (14.88%) Cost of goods is not the real reason for increase in expenses..
"Purchase of stock in trade"(up 49.5%)  and "change in inventory of finished goods"(up 33.45%)  seem to be the main culprit for increase in expenses.. (though employee expenses and other expenses have also increased at a higher rate than increase in sales..)

Profit from Operations: Down 4.67% (Negative)
The 0.84% increase in expenses has resulted in a 4.67% decrease in Profits from operations  since actual sales increase was 14.88% we should have seen an increase in profits.. so the actual drop in profits is like (4.67+14.88 = 19.55%) comparative decrease in profits..

Clearly the purchase of stock in trade and change in inventory has impacted profits in a big was as Jayant has leveraged operations. The only positive is that its not cost of goods but more of inventory and stock in trade doing the trick..

Other Income: UP 2140.68%
Huge spike in other income(294.65 lakhs Last year: 13.15 lakhs) .. looking at the results there is an interest income of 206.69 lakhs (2.06cr) which was missing last year (june 2013=0.92 lakhs). My take is that company used to report "Net finance cost"  ie. (Finance cost - interest income) and now they have separated the two due to new reporting regulations (I think).. so we should see increase in interest income and in finance cost.. 

Profit Before Finance cost: UP: 13.43% (negative)
Profit increase is less than the increase in sales.. so its negative  
Sales increase: 14.88%
Profit Increase: 13.43% 
Difference: 1.45%  while Difference in case of expenses was 0.84% Profit before finance cost is also being supported by 2.06cr Interest income.. So actuall Profit before finance is much worse..

Finance Cost: UP 80.40% (negative)
Finance cost as we discussed is up due to interest income going up.. lets reduce the interest income
True Finance Cost(2014) : Finance Cost: 1139.48 Less Other income: 294.65 = 844.83 lakhs
Finance cost (2013): 631.65 lakhs 
Increase in finance cost: (844.83-631.65)/631.65 = 33.74%

Clearly finance cost have increase at a rate higher than increase in sales or increase in expenses.. but then inventory has increased 
Real inventory (2014):(Purchase of stock in trade + Change in inventory of finished goods) (7207.76 - 5614.36)= 1593.4 lakhs
Real inventory (2013): (4818.32 - 4207.11)= 611.21 lakhs
% increase in inventory: (1593.4-611.21)/611.21 = 160.69%
On a Y-Y basis inventory (Purchase of stock in trade + Change in inventory) has increase 160.69%

Conclusion: finance cost has increased but so has inventory of goods.. so it could be stocking up for future sales or it could be a negative development due to pile up of the inventory (unsold goods) we will know in the future..

PBT: Down 32.20%
TAX: Down 45.39%
Net Profit: Down 25.09%

PBT,TAX, Net Profit all are down.. the good part is "Taxes are down" by a greater percentage than PBT or Net Profit.. my understanding that Modi govt has given tax incentives.. to corporates.. and looks like that is what is happening.. companies are reporting higher expenses and hence lower taxes..

Conclusion of Y-Y comparision:
Sales have increased 14.88% which is a positive..
Expenses have increase 15.72% but its not the cost of  goods but inventory and purchase of stock in trade which has resulted in increase in expenses..
Other income is up and finance cost if up.. looks like as part of new reporting guidelines..companies have to report interest income as a separate line item which has resulted in increase in finanace cost.. the other major cause of increase in finanace cost is due to increase in inventory or stock in trade(my assumption) based on sharp increase of 160.69%..

my take is that the results have been disappointing primarly due to clever accounting..as sales have increased and "cost of goods" is still well under control.. The main target could be reduction in taxes.. which is the reason for higher inventory reporting, higher interest payments and drop in profits..  Higher inventory could indicate higher sales in subsequent quarters.(positive spin)

PN: these are my personal intepretation of results based on publicly available information and could be wrong. Please do your own deep dive

Vertical Analysis.. everything is compared on a % of sales basis..

1. Cost of goods for June 2014 quarter is less than March 2014 or June 2013..
Also Year end cost of goods is lower.. so Jayant does have higher cost of goods during the 1st half and maybe lower cost of goods in 2nd half (higher profit margins in 2nd half??)

looking at year end Cost of Goods 2013(68.30%)  & 2014(73.76%)  Cost of goods is definitely trending up.. but the company has been able to maintain its profit margins
2013 (NP Margin: 2.19%)
2014 (NP Margin: 2.64%)

2. Purchase of stock in trade is the primary reason for increase in expenditure..

looking at the figures clearly nothing seems out of order in june 2014 results..  new segment reporting of interest income has been normalized in the income statement.. Taxes are lower.

If you read the notes section of the report.
- Depreciation is higher and depreciation for previous years has been directly reduced from the company reserves.. depreciation at consolidated level is higher by 17.64 lakhs for the quarter June 2014

- Inventory calculation method has been changed from "First in first out" to "weighted avg.." which has resulted in consolidated profits being lower by 1cr for the quarter june 2014

Conclusion: My take is June 2014 is just another quarter.. with not much changes .. lower profits higher inventory.. are part of reporting.. and donot see anything extra ordinary or out of place.. "Its Business as usual"
Link to June 2014 Results Company Website


Anonymous said...

Dear Whatsup ji

Greetings. Nice analysis.. still patiently waiting with my Jayant agro stocks...

What is your stand on NHPC?? Still is it a buy or to ignore.. Again it has come to 21 levels..
Thanks and regards

What'sUp Prahalad said...

Venkatesh ji:
NHPC is a great stock as its the market leader in hydro power..

value will unlock as energy crisis deepens and new projects roll out.

New projects should have higher "merchant power" capacity making them more profitable..
trigger is "merchant power capacity" and new projects..

=happy investing

Anonymous said...

Thanks for your comment Whatsupji


Anonymous said...


Your one of the pick GAEL doing well in this market...I am holding 1000 shares at 34 rs..Holding more than 4 year ..What you suggesting..I am willing hold more time....Is it good idea these shares keep it for next generation or 80-90 level exit and look for any other good opportunity??
I appreciate your feedback


What'sUp Prahalad said...

Anonymous ji:

the 4 best buys.. GAEL, Jayant, NHPC & Tata Comm are lifelong stocks..

even if you hold it for next 20yrs you will stand to benefit..

GAEL has underperformed a long time aND Fair valuation is clearly above 100 bucks..
gael has out performed stocks like hero honda,ITC,HUL ..for past 14 yrs..

=happy investing