Riddhi Siddhi Gluco Biols (RSGB) reported a modest growth in topline, but a sharp fall in net profit for Q4FY08. The company posted an 11% y-o-y increase in net sales, slightly above our expectations owing to higher volume growth.
However, lower realizations stemming from a change in product mix coupled with higher maize (input) prices hampered margin growth significantly. Further, increased interest costs and deferred tax expenses saw net profits sliding by 72% y-o-y to Rs26.7 million, much below our expected figure of Rs100 million.
The company has also started commercial production from its Uttarakhand plant (maize crushing capacity of 500tpd) from May 2008. The government’s step to ban maize exports is likely to bring some cheer to the company as it would contain the price of this input.
Production levels at the Gokak plant are also stabilizing gradually post the fire accident. We believe the worst is over for the company. However, looking at the lower-than expected profitability, tough market conditions and possible economic slowdown, we are reducing our estimates for FY09.
We have cut our target price to Rs301 from Rs372 and maintain BUY recommendation.