UPL to focus on debt as working capital jumps to 108 days in Apr-Jun

1 Aug 2022

A sharp rise in net working capital and number of working capital days in the quarter ended June has led to UPL Ltd to keep the working capital and debt management as key focus areas in the current financial year.

In an earnings conference call with investors and analysts today the company management said that it was actively working on the ground to rein in the net working capital and reduce the number of working capital days in order to reduce the net debt.

The net working capital is derived as inventory plus trade receivables minus trade payables.

UPL’s working capital rose sharply to 108 days in Apr-Jun from 91 days in the year ago quarter.

This resulted in the net working capital rising substantially by 56.1 bln rupees to 142.4 bln rupees as of June 30 from 86.3 bln rupees on March 31.

It further led to the company’s consolidated net debt, adjusted for foreign currency impact, rise sharply by 34% to 253.9 bln rupees as on June 30 from 189.1 bln rupees on March 31.

The company management told analysts in the call that the surge in working capital days was due to the 27% rise in sales, rising interest rates in all countries where it operated in, an increase in receivables in Latin America and a 10-day increase in inventory days.

The company claimed that the working capital days will normalise to 80 days by end of 2022-23 (Apr-Mar) with a significant release in the second half of the year, and this will lead to lower debt levels.

In Apr-Jun, the working capital build-up led to a jump of 71% on the year in interest costs on borrowings to 4.8 bln rupees.

The total finance costs in the June quarter, however, declined to 5.2 bln rupees from 6.1 bln rupees a year ago due to a foreign exchange gain of 880 mln rupees as against a foreign exchange loss of 2 bln rupees in the year ago quarter.

The foreign exchange gains resulted from hedges taken against advance orders, the company’s management said.

UPL’s consolidated revenue rose by 27% on the year to 108.2 bln rupees in Apr-Jun, while its consolidated net profit went up by 29% to 8.8 bln rupees.

The company saw strong sales in Latin America, North America and other parts of the world excluding Europe and India.

The Latin American sales jumped 38% on the year to 34.6 bln rupees, while North American sales rose substantially by 47% to 18 bln rupees

UPL net profit up 29% on strong sales but margin stays near flat

1 Aug 2022

A significant rise in input costs dented what was otherwise a good earnings performance by agrochemical company UPL in the quarter ended June. 

Barring a marginal contraction in operating margin the company’s topline, operating profit and bottomline recorded high growth rates.

In Apr-Jun, UPL’s consolidated net profit went up by 29% on the year to 8.8 bln rupees. It was much higher than analysts’ estimate of 6.2 bln rupees.

The consolidated revenue from operations of the company jumped 27% to 108.2 bln rupees beating analysts’ estimate of 95.8 bln rupees.

Sequentially, UPL’s consolidated net profit was down 36% while its consolidated revenue was down 32%.

The volume of the company increased by a small rate of 6% on the year but an 18% jump in product realisations led to the strong rise in the company’s revenue.

The operational performance of the company was mixed. 

The earnings before interest, tax, depreciation, and amortisation rose 26% on the year to 23.4 bln rupees in the June quarter. But the EBITDA margin contracted marginally to 21.6% from 21.9% a year ago.

According to UPL’s chief executive officer Jai Shroff the EBITDA margin was flat as the June quarter saw “significant input cost inflation and a challenging macro-economic environment.”

He said that the “strong agri commodity prices drove significant uptick in price realizations.”

UPL’s revenues were driven by strong rise in sales in Latin America, North America and other parts of the world excluding Europe and India.

With one-third share of total revenue the Latin American sales of UPL jumped 38% on the year to 34.6 bln rupees in Apr-Jun, while North American sales rose substantially by 47% to 18 bln rupees. 

The Europe sales were moderate with a 13% increase to 17.3 bln rupees while domestic sales were muted, going up by 8% to 20.7 bln rupees.

The rest of the world sales of the company stood at 17.7 bln rupees, up 31% on the year.

UPL has revised its revenue growth guidance for the current financial year 2022-23 (Apr-Mar) up at 12-15% from 10% earlier.

Earnings Outlook: PI Industries net profit seen up 26%, sales up 33%

1 Aug 2022

PI Industries Ltd’s custom synthesis and manufacturing segment is seen aiding the topline and operating profit performance in the quarter ended June.

The company’s domestic agrochemical segment will likely have posted muted volume growth but price hikes may have led to a better revenue increase.

PI Industries’ net profit for the June quarter is seen at 2.3 bln rupees, up 26% on the year and its sales are expected to up by 33% at 14.8 bln rupees, according to an average of estimates by five brokerages.

Sequentially, the estimated net profit is up 13% and the estimated net sales is up 9%.

The company will declare its Apr-Jun results on Wednesday.

Brokerage Kotak Institutional Equities expects PI Industries’ revenue growth to be at 20% on the year lead by a 25% rise in custom manufacturing solutions segment and a 12% increase in domestic agri-input sales.

The custom synthesis and manufacturing segment’s revenue growth will likely have been “on the back of a strong order backlog and decent demand from the end industries,” said brokerage ICICI direct.com Research in its preview report.

PI Industries is seen having taken price hikes which would have offset definite input cost pressures.

“Though domestic margins may come under pressure, CSM (custom synthesis and manufacturing) margins are seen improving in FY 2023 (2022-23) as per management guidance,” said Kotak Institutional Equities.

Development of key molecules in pharma intermediates would be an important monitorable from PI Industries earnings, according to ICICI direct.com Research.

Metals Stocks Outlook: Rally may fizzle out next week on weak cues

 29 Jul 2022

Next week the market will weigh on the weak earnings performance of metal sector stocks in the June quarter. This week two large metal sector companies, Tata Steel Ltd and Vedanta Ltd, reported their financial results for Apr-Jun with both revealing a fall in operating margin.

The metal stocks traders are also getting tired of statements of Chinese push for economic revival leading to rebounce real estate projects and ensuing demand for base metals.

“There is nothing on the ground that corroborates the claim,” said a metals analyst with a leading brokerage.

This week, metal stocks moved higher strongly on clarity from the Federal Reserve not pursuing an aggressive rate hike trajectory due to a contraction in US economy for a second quarter. The Nifty Metal index ended the week 7.7% higher.

But the effect of the slight shift in Federal Reserve’s stance may be short lived going forward as fundamentals will come back to haunt.

The steel stocks may be under pressure due to expectations of the companies facing operating margin contraction in the current quarter as well.

This week, Tata Steel announced its results. The company’s consolidated net profit in Apr-Jun fell 12.9% on the year on the back of a 7% fall in operating profit.

Tata Steel’s executive director and chief financial officer Koushik Chatterjee said that there was a sharp rise in input costs especially coking coal and gas prices in Europe.

Earnings Outlook:UPL revenue to rise but input costs to impact margin

 27 Jul 2022

UPL Ltd is likely to have recorded a rise in its volume and realisations in the quarter ended June leading to a rise in its net sales.

But input cost pressures may have resulted in a marginal decline in its operating margin, even as operating profit is expected to increase on the back of sales increase.

The bottomline of the pesticides and agrochemicals company is, however, seen down due to the high base of last year when a tax write-back had boosted the net profit.

UPL’s consolidated net profit in Apr-Jun is expected to be 6.2 bln rupees, according to an average of estimates by four brokerages. The estimates peg the company’s consolidated net sales at 95.8 bln rupees.

The estimated net profit is 9% lower while the estimated net sales is 13% higher as compared to the corresponding figures of year ago period. Sequentially, however, the net profit is lower by 55% and the net sales by 40%.

The company will declare its June quarter results on Monday.

According to brokerage Nirmal Bang Equities UPL’s consolidated revenue in Apr-Jun is expected to increase by 9.9% on the year on the back of volume growth across all the regions.

It expects volume growth of 20% in Latin American markets followed by 15% in domestic market and 5% in North American region. UPL’s volume growth in the European region will be flat and lower by 0.7% in the rest of the overseas markets.

Sales to Latin American region constituted around 30% in the year ago quarter.

UPL’s revenue growth will be aided by double-digit increases in average realisations, brokerage Kotak Institutional Equities said.

The operating margin of the company is seen contracting a little in the June quarter due to input cost pressures.

Nirmal Bang Equities estimates the EBITDA margin “to be a tad lower at 20.7% versus year-ago level of 20.8%”. Kotak Institutional Equities believes it will “compress modestly.” EBITDA is earnings before interest, tax, depreciation, and amortisation.

The revenue increase will, however, pep up the operating profit of UPL in Apr-Jun by around 10%.

Besides the potential pressure from high input costs UPL may have incurred higher than expected working capital requirement and there may have been an adverse impact due to the rupee depreciation, according to Nirmal Bang Equities.

The company’s net profit will likely decline on the year due to a “difficult base”, said Kotak Institutional Equities. UPL’s net profit in the year ago quarter included a tax credit, it said.

Earnings Review: Segmental dynamics dominated Vedanta’s operations

28 Jul 2022

The profitability of Vedanta Ltd in the quarter ended June was supported mainly by the zinc, lead, and silver operations carried out under its listed subsidiary, Hindustan Zinc Ltd, while the aluminium and other segments proved to a major drag.

In Apr-Jun, Vedanta’s consolidated operating profit went up by just 7% on the year to 107.4 bln rupees despite revenue rising by 35% to 393.6 bln rupees.

Had it not been for a 49% jump in the operating profit of the company’s domestic zinc and lead segment to 52.3 bln rupees, the company’s profitability would have been badly hit.

The aluminium segment reported a substantial fall of 40% on the year to 22.5 bln rupees in Apr-Jun while the rest of the segments collectively saw a fall of 15% to 55.1 bln rupees.

The other segments included iron ore, oil and gas, international zinc, copper, and power.

The aluminium segment’s production output was 3% higher at 565,000 tn and revenue from aluminium sales jumped 43% to 146.4 bln rupees, but the cost of production surged 74% to $2,653 per tn.

The company attributed this sharp rise in cost of production of aluminium to power and fuel costs.

Vedanta’s overall power and fuel costs jumped 2.3 times to 89.5 bln rupees in Apr-Jun from that in the year ago period, and made up for 27% of total expenses.

The operating margin contracted to 32% in Apr-Jun from 41% a year ago.

Besides aluminium sales, the significant revenue increase of 35% was led by domestic zinc, lead, and silver segment whose revenue jumped 45% on the year to 91.8 bln rupees.

The mined metal production from domestic zinc operations rose 14% on the year to 252,000 tn in the June quarter. The company said this rise was “driven by higher ore production and better mill recovery.”

The company’s overall revenue was “supported by higher sales volume across businesses, commodity prices and strategic hedging gain.”

Going forward, Vedanta’s priorities according to its chief executive officer Sunil Duggal would be on volume, timely execution of projects, value added products, vertical integration, cost reduction and commodity price risk management.

Vedanta Apr-Jun profit muted due to surge in operating cost, sales up

28 Jul 2022

A sharp rise in power and fuel costs, and other expenses, took a severe toll on Vedanta Ltd’s profitability in the quarter ended June.

The net profit and operating profit were both up in single digits but the operating margin contracted sharply.

The metals and mining company recorded a small increase of 4.7% on the year in its consolidated net profit to 44.2 bln rupees while its consolidated total income rose 35% to 393.6 bln rupees.

Vedanta’s volume in different segments showed a mixed trend with iron ore and steel production registering declines and aluminium production recording a marginal increase. A double-digit rise in domestic zinc production is what aided the company’s topline in the June quarter.

The operating profit, as denoted by the earnings before interest, tax, depreciation, and amortisation, was up only 7% on the year to 107.4 bln rupees.

Power and fuel costs jumped 2.3 times to 89.5 bln rupees in Apr-Jun from that in the year ago period, while other expenses rose 38% to 87.2 bln rupees.

Both, power and fuel, and other expenses, made up for around 27% each of total expenses.

The main impact of the surge in input costs was felt on Vedanta’s EBITDA margin which contracted significantly to 32% in Apr-Jun from 41% a year ago.

Vedanta’s aluminium production rose marginally by 3% on the year to 565 kilo tn. Alumina production was also up marginally by 1% to 485 kilo tn.

The company’s production of saleable iron ore fell 14% on the year to 1.26 mln tn, while pig iron production stood at 189 kilo tn.

Vedanta’s steel production also fell 7% on the year to 269 kilo tn in the June quarter.

The company’s net debt increased by 58.2 bln rupees in Apr-Jun to 268 bln rupees as on Jun 30.

Earnings Review:Shree Cement profit dives, power and fuel costs surge

28 Jul 2022

The power and fuel costs more than doubled for Shree Cement Ltd in the June quarter and took a heavy toll on the company’s operating profit and net profit. A good sales rise could not offset the cost pressures.

In Apr-Jun Shree Cement’s consolidated net profit fell 56% to 2.8 bln rupees as compared to the year ago quarter, and it was also down 58% from the previous quarter. The consolidated net sales rose 22% on the year and 1.1% on the quarter to 44.1 bln rupees

At a standalone level the company’s net profit of 3.2 bln rupees, which was down 52% on the year, was considerably lower than analyst estimates of 5.1 bln rupees.

The revenue from operations were up 22% to 42 bln rupees and was above analyst estimates of 40.5 bln rupees.

Shree Cement’s consolidated operating profit fell 22% on the year to 8 bln rupees, down 22% over the year ago period and down 14% over the previous quarter. The operating margin contracted sharply to 18% in Apr-Jun from 28% a year ago and 21.1% in the previous quarter.

The profitability hit by a substantial rise in power and fuel expenses, which are predominantly petcoke and coal costs. It jumped 2.1 times on the year to 15.1 bln rupees. It accounted for around 38% of the company’s total operating expenses. Sequentially too it was up, by 19%

The freight and forwarding costs increased moderately by 8.3% on the year to 9.1 bln rupees and compared to the previous quarter it showed a decline of 5.2%.

Shree Cement’s depreciation charge jumped 30% on the year to 3.5 bln rupees in Apr-Jun. Tax expenses fell sharply by 53% on the year to 0.97 bln rupees.

Shree Cement is the second largest listed cement company by market capitalisation with 12 manufacturing units across 10 states in the country.

The company recently announced an expansion of annual cement capacity by 3 mln tn by end of 2024 for which it would have to incur a capital expenditure of 25 bln rupees.

Shree Cement’s current annual capacity stands at 46.4 mln tn. In 2021-22 (Apr-Mar) its plants ran at 64% capacity.

Earnings Outlook: Shree Cement volume, operating profit seen down QoQ

26 Jul 2022

Shree Cement Ltd’s sales volume in the quarter ended June would likely have been higher than a year ago due to the low base of last year but lower than the previous quarter. Higher realisation from cement price hikes would, however, result in revenue rise for the company.

The company’s revenue from operations is seen at 40.5 bln rupees according to an average of estimates by 12 brokerages, indicating an 18% growth on the year and a 1.2% decline on the quarter.

The June quarter net profit is seen at 5.1 bln rupees according an average of estimates by 11 brokerages. The estimated figure is lower by 23% from that of the year-ago period and also lower by 21% as compared to the previous quarter.

The operating profit of Shree Cement, as represented by the earnings before interest, tax, depreciation, and amortisation figure, is seen at 8.1 bln rupees in the June quarter, according to an average of estimates by 10 brokerages. It is 30% lower than 11.5 bln rupees of EBITDA in the year ago period and 23% lower than that of the previous quarter, data from Informist Corporate Fundamental Database showed.

The steep fall in operating profit in the June quarter would hit the company’s net profit and cause it to fall.

The company will declare its June quarter results on Thursday.

Brokerage Kotak Institutional Equities estimates the company’s volume in Apr-Jun to be 7.5 mln tn factoring in demand moderation due to higher cement prices. The estimated volume is 9.6% higher than year ago period due to a low base and 6.6% lower than that of the previous quarter.

Another brokerage Axis Securities predicts Shree Cement’s Apr-Jun revenue to be higher on the year due to better volume and higher realization.

However, the elevated and rising input costs would have hit Shree Cement’s profitability in the June quarter.

According to ICICI direct.com Research, Shree Cement’s “higher dependence on petcoke and imported coal is expected to lead to a sharp increase of 13% in the cost of production on a QoQ (quarter on quarter) basis”. On a year on year it is expected to increase 26%, the brokerage said.

Due to an on-the-quarter increase of 10%-15% in power and fuel costs led by pet coke and coal prices in the past six months and a 5%-7% increase in freight costs Kotak Institutional Equities estimates the operating profit per tn to fall 4% on the quarter and 26% on the year to 1,087 rupees. This will factor in the partial offsetting impact of higher realisations, the brokerage said.

Input cost inflation still a worry, may hike price, says Asian Paints

26 Jul 2022

Input cost inflation is likely to be around 1.5% to 2% in the quarter ended September after seeing an increase in the June quarter to 6% from 1% in the March quarter, the company told investors and analysts in a post-earnings conference call today.

The company is banking on cost efficiencies and calibrated price increases to maintain its profitability going forward. To combat ongoing price increases in key raw materials such as solvents Asian Paints has decided to take a 0.5% price increase from Aug 1.

The operating margin of the company expanded to 19.4% in Apr-Jun from 18.7% a year ago, the company disclosed.

Asian Paints’ managing director and chief executive officer Amit Syngle said that the on-year volume rise in Apr-Jun was 35%.

A strong volume increase and a 2% price hike in Apr-Jun contributed to the 54% jump in net sales to 86.1 bln rupees.

Sequentially, however, the volume increased by a lower rate of around 12%, data from the company’s investor presentation showed.

Further, the Apr-Jun revenue was up sequentially by only 9%, indicating that the 2% price hike was not enough to offset the 6% input cost inflation.

Volume in the June quarter rose on the back of higher contribution of business from tier-1 and tier-2 cities where the sales of premium emulsions, luxury products and waterproofing solutions were brisk.

The company said it saw a good increase in business-to-business category sales to the builder segment, construction companies, co-operating housing societies in cities, factory units and government’s infrastructure projects.

In its international business Asian Paint’s revenue was 7.1 bln rupees in Apr-Jun, up by 16% on the year. But the volume went up by only 6% and the company effected steep price increases to boost revenue.

The Asian markets of Nepal and Bangladesh contributed the most to the international business revenue growth.

But the company said that currently the key global units, especially in Sri Lanka, Bangladesh, Ethiopia and Egypt were facing multiple headwinds and the company expected them to be under strain for some time.

On the domestic front Asian Paints is only concerned about input cost inflation going forward and does not consider consumer demand to be a matter of concern.