Higher operating cost, along with a just about satisfactory 10% growth in revenue, has taken the sheen off the June quarter consolidated operating performance of Ballarpur Industries Ltd (Bilt).
Operating profit margin has fallen by around 340 basis points to 18.7% compared with the same period last year. One basis point is one-hundredth of a percentage point.
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Operating margin for the June quarter (which is the fourth quarter for the paper manufacturer) is lower than the full year operating margin (at 19.4%) as well. Margin for the year, too, has fallen by about 250 basis points. Analysts from Emkay Global Financial Services Ltd point out in their post-earnings note that the June quarter margin is the lowest since 2006.
Other expenditure, and power, fuel and water charges have increased substantially in the June quarter on a year-on-year basis. The fact that Bilt is currently importing part of its pulp (raw material) requirement has also affected performance.
For the quarter, operating profit declined by 6.6% to Rs 222 crore, but profit before tax fell at a faster pace of 30% to Rs 64 crore because of 14% increase in depreciation costs. Operating profit for the year has increased by 4.4% and profit before tax has decreased by 3.5%.
Bilt is increasing its pulp capacity, which is expected to improve margins. In a post-earnings conference call, the company maintains that profit margins can move up to 23-25% from fiscal 2013 (FY13). That is something to cheer about, but cost pressures are likely to keep margins under pressure in the near term.
That could also keep any meaningful upsides in the stock limited in the near future, despite the stock trading at attractive valuations. According to analyst estimates, Bilt is currently trading at about six times its estimated earnings for FY12.
The stock has dropped 17% since 30 June to Rs 27.35, while the BSE-500 index has fallen 12% during the same period.
Graphics by: Ahmed Raza Khan/Mint
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