Net sales for Q2 FY13 at standalone level stood at Rs9.6bn, a modest growth of 13.2% on yoy basis. Growth decelerated across the segments, with cables and wires been the worst impacted segment reporting paltry growth of 5% on yoy basis. Within cables and wires segment revenues from industrial cable de-grew by 16% while revenues from domestic wires business jumped by 42% on yoy basis more than offsetting the decline from industrial cables. Revenues in electrical consumer durable segment surged by 33%. Lighting and Fixtures segment clocked in 13.6% yoy revenue growth.
Operating profit margin of the standalone business for Q2 FY13 contracted by 126bps on yoy basis as advertising spend more than doubled to Rs348mn against Rs142mn in Q2 FY12. At segmental level, EBIT margin for the Switchgears division contracted sharply by ~4.6pps on yoy basis. Management attributed ~2pps impact to one time cost of custom duty. Sharp decline in revenues from industrial cables and surge in revenues from domestic wires ensued into product mix change towards high margin domestic wires. Resultantly, EBIT margin for the segment expanded by 156bps on yoy basis. For electrical consumer durable division EBIT margin declined sharply from 27.7% in Q2 FY12 to 22.6in Q2 FY13. The precipitous fall in margin was attributed to a) sharp depreciation of rupee resulting into higher cost, b) impact of higher raw material cost, c) higher advertising spend during the quarter, d) price hikes not sufficient to offset the entire cost increase.
Revenues (€ terms) from its overseas subsidiary (Sylvania) descended by 5% yoy, with European region registering a revenue decline of 13.2%. Sequentially, overall revenues for Sylvania increased by measly 1.5%. Operating profit margin for Sylvania stood at 3.3%, decline of 416bps on yoy basis. Slowdown in Europe coupled with higher raw material cost and adverse product mix were the key factors for decline in margins for the quarter. The company has guided for 6-6.5% EBIDTA margins over FY13-FY14.
We expect strong growth in revenues for the standalone business to continue over FY12-14 coupled with steady expansion in OPM. For Sylvania, we expect revenue to report flattish growth. However based on the revised guidance from the company for the EBIDTA margin for Sylvania, we have downgraded our margin estimates to 6-6.5% levels over next two years. We downgrade our overall estimates to factor in slower growth in the cables and wires business coupled with decline in profitability for electrical consumer durables segment. We retain our positive stance for the fundamentals of the company in the long term. But we do not foresee any material upside in the stock in near term and hence retain our Market Performer rating with the revised target price of Rs612.
|(Rs m)||Q2 FY13||Q2 FY12||% yoy||Q1 FY13||% qoq|
|Purchase of traded goods||(1,040)||(873)||19.2||(914)||13.8|
|OPM (%)||12.4||13.6||(126) bps||12.6||(26) bps|
|Extra ordinary items||101||(131)||-||(85)||-|
|Effective tax rate (%)||17.5||19.1||-||20.3||-|
|Adj. PAT margin (%)||9.0||8.2||78 bps||7.7||129 bps|
|Ann. EPS (Rs)||27.9||22.5||23.9||25.7||8.6|
|As a % of net sales||Q2 FY13||Q2 FY12||bps yoy||Q1 FY13||bps qoq|
|Purchase of traded goods||10.8||10.3||54||8.8||196|
|(Rs mn)||Q2 FY13||Q2 FY12||% yoy||Q1 FY13||% qoq|
|Cables and Wires||3,907||3,692||5.8||4,313||(9.4)|
|Lighting & Fixtures||1,561||1,374||13.6||1,498||4.2|
|Electrical Consumer Durable||1,623||1,220||33.1||
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