GAEL: Gujarat Ambuja Exports Year Ending March 2011

GAEL (Gujarat Ambuja Exports Limited) as most of you are well aware is one of my recommended "Best Buy's"

CMP: 28.30

Market Cap: 391.54Cr

ROCE: 17.01%

Debt Equity: 0.46

Long Term Debt: 9.77Cr

 Here we will have a look at the annual result of GAEL for year ending March 2011.

The year ending March 2011 has been good to GAEL. 

1. Let us start with a "Year on Year" Comparison.

- Topline (Income) has increased by  38.31% to 1951Cr

- PBDIT has increased by 32.01% to 155.10Cr

- Net Profit has increased by 56.75% to 94.10Cr

looking at these numbers that Operating margins are stable (since PBDIT increase (32.01%) matches the 38.31% increase in topline)

Financial parameters such as Lower Taxes it seems has played a major part as Net taxes paid has actually dropped (25Cr as compared to 29.99Cr [2010])even as the PBDIT has expanded. Even Interest payments as percentage of sales growth is lower. So Good financial management has enhanced GAEL Results. (Zero taxes for the Uttarakhand plant could be the driver for lower tax burden..)

2. One must look a little deeper as GAEL has 4 divisions with different (Profit margins) Cotton Yarn(6.44%) , Maize Derivatives(19.85%) , Agro-processing (3.69%) and Windmill(53.36%) The revenue mix for GAEL in March 2011 has been towards the lower margin product. 

- Agro Processing as % of sales: 67.95% [2011] compared to 62.34% [2010]

- Maize Processing as % of sales: 20.83% [2011] as compared to 24.38% [2011]

So GAEL produced more of lower margin products hence the slight decrease in margins. 

Please note Maize division sales increased from 346.8Cr[2010]  to 406Cr[2011]  its just that the Agro Processing division increase in sales was much higher 879.43Cr [2010] to 1325.70Cr [2011]

3. Maize Derivatives business is the money spinning division of GAEL and Maize Derivatives division reported profits of 80.65Cr out of total PBIT of 146.72Cr 

Maize division contributed more than 50% of profits of GAEL while responsible for only 21% of GAEL Sales.. 

Maize division also saw improvement in Profit margin from 12.95%[2010]  to 19.85% [2011] which is more than 690 basis point improvement in margins.

4. Another interesting observation is "Prior Period Items" the numbers reported (for past 2 yrs) invariably match up with the taxes paid in the Quarterly results of March. So GAEL has been front loading the expenses for the past 2 years.. reducing the Q1-Q3 Profits. Infact for March 2010 we did mention in this blog the 10+Cr positive development between Audited and unAudited March 2010 Quarterly results (Link) ..

Annual Report for Gujarat Ambuja Exports Year 2010-2011

Few points worth mentioning from the latest Annual Report (2010-2011)

- Company shares in Demat form are just 40.92% out of which 18.84% is held by Promoters.. shares with public (HNI and individual investors)  in demat form is 13.5% .. So actual  liquidity is pretty low for GAEL shares. (Free Float with HNI, Individual investors: 53Cr)

- Long Term debt is 9.77 Cr (TUFF loans from Govt for Spinning division) 

- Book Value for Rs 2 Face value share is 36.60 [30.39 in 2010]

- Management states: The core activity of the company has gradually been shifted from oil seed extraction to corn processing activities over a period of last few years.

The company has acquired sufficient expertise in this segment and looking to the growth potential of this segment, the company is putting one more corn processing plant. This would eventually replace this segment as the core segment instead of agro processing segment.

The shift has positive impact on the top as well as bottom line in the FY 2010-11. In fact the two corn processing units of the company are the top performers in FY 2010-11." 

- Non Conventional Energy: "The Board of Directors is glad to inform that the Company successfully completed projects of generating power from BioGas for its Corn processing units at Himatnagar & Sitarganj. The Company has installed Bio Gas Engine at both the units for power generation. This initiative also takes care of carbon reduction and environmental friendly approach of the Company. The project is forward integration of the Bio Gas generation from the Corn processing effluent. With the success of these projects, the Company has put additional infrastructure for the bio gas generation at both the units. The generation of additional bio gas has already begun in F.Y. 2010-11 and the Company is also putting engine at each unit for forward integration of bio gas into power in the current F.Y. Such projects are capital incentive and their sustainability is based on CDM/ VCS revenue from such project."

- GAEL has 21Cr of cash in hand, 77Cr of investment in stocks and Bonds,  478Cr of Reserves, Long term debt of just 9.77Cr. Cash Flow from operations is 65Cr[2011]

Conclusion: 

GAEL at CMP of 28.3 Market cap of 391Cr, Book Value: 36.60 is a deep value stock. Management is focused on moving from low margin (5%)"Agro Processing" to higher margin (20%)"Maize Derivatives" business. With increase in Maize Derivatives capacity of current plants and setting up of new capacities GAEL is all set to see better days ahead. Promoter holding is a confidence building 63.95%. Demat levels are low [40%] and actual free float is closed to 14-20%. Investment can be considered for the long term at these price points. 

PN: These are my personal views about GAEL based on my interpretation of publicly available data.

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