Jayant Agro: Dec 2012 Quarterly Result Review

Jayant Agro Dec 2012 Quarterly and 9 month results are out.

You can get a copy directly for the company website here (Link)

We generally look at the Consolidated data.

We compare the expenses, earnings all as a percentage of sales..

Important observations are:-

1 - There is a drop in sales.  323.58 Cr(Dec 2012) Vs 403.18Cr (Dec 2011) that's a steep fall of 19.74%

something to watch out for and a cause for concern.

2 - Operating margins (PBDIT) 6.16% (Dec2012) Vs 4.99%(Dec2011) margins have improved 1.17% which is great news and is expected because Jayant Agro has started commercial production of Sebacic Acid in its new plant which is high value castor oil derivative where margins should be better.

3 - Operating margins even at 9 months level 6.78%(Dec 2012) Vs 5.05%(Dec 2011) clearly shows that Jayant Agro is doing better and will report atleast 100bps improvement in operating margins at PBDIT level for the full year.

4 - Depreciation is 1.02%(Dec 2012) Vs 0.40% (Dec 2011) this is a pretty big jump actually.

Looking at the 9 months data we can see that 

Depreciation: 9.77Cr (Dec2012) Vs 4.53Cr(Dec 2011) that's a 115.67% increase.

Dig a little deeper and looking at the consolidated annual report March 2012 we see that:-

Tangible Assets on March 2011: 36.06Cr 

Tangible Assets on March 2012: 134.50Cr

There is a rise of 272.98% in Tangible Asset over last year. This is mainly driven (I assume by the starting of commercial production of the Sebacic Acid Plant and capitalization of the new plant)

Depreciation it seems is one of the primary reason for drop in reported profits.

5 - Interest Payments:- This is the real reason Jayant Agro gets poor valuation. 

Interest as a percentage of sales on 9 month basis:

27.32Cr (Dec 2012 - 2.38% ) Vs 27.45Cr (Dec 2011 - 2.00%)

Even though on an absolute basis the interest payments are down.. but since the topline has reduced by a larger percentage .. Interest payments have actually taken a larger share of income.

Conclusion: No denying the fact that topline has reduced which is a major cause for concern. Jayant's Derivative business has helped in improving margin during these tough times. The starting of commercial production has also increased the asset base from 36.06Cr to 134.50Cr which will increase the depreciation numbers going forward impacting the reported profits. Interest rates are still rising in Jayant Agro's books .. and is a cause for concern. This perpetual rise in interest payments has to be curtailed if Jayant Agro has to improve its valuations.

Jayant Agro is the largest player and is very well established in castor oil and castor oil derivatives business. If it was any other company in any other field of operations .. it would be a cause for concern. Considering that Jayant is uniquely placed to take advantage of castor oil production base of India ..and the "Green Chemical" being a sunshine industry.. I would still consider it a great buy ..at current price levels (106-110)  but with a longer time horizon of 2+ yrs for substantial return. Longer horizon due to the fact that Global economy is contracting and there could be some delay in ramp up of demand for Green Chemicals..

PN: These are my personal views and opinion based on publicly available information. I do have investments in stocks that are discussed or reviewed in this blog. Please do your own deep dive before investing.