EID Parry - Not a sweet quarter - Edelweiss

EID Parry's (EID) Q2FY13 revenues were inline while EBITDA and PAT were below estimates, primarily on account of a muted performance by Coromandel International and lower profitability in sugar business, owing to higher cane costs. The management believes that domestic sugar prices should be in the range of INR32-34/kg in near term. Owing to the improving sugar segment performance coupled with the likely upside in Coromandel International translating into higher valuation, we remain positive on the stock. Maintain 'BUY'.

EBITDA, PAT disappoint

EID posted a consolidated revenue decline of 4.9% YoY, EBITDA margin of 8.1% (down 320bps YoY and 270bps QoQ) and adj. PAT of INR594mn (down 45.6%). EBITDA and PAT were below estimates, primarily due to higher cane costs despite better volume as well as sugar recovery.

Key highlights

- EID has crushed 1.44mn MT cane in Q2FY13 (up 13.0% YoY) though there were no sugarcane crushing in subsidiaries during Q2FY13. Consolidated sugar sales volume was up by 10.4% YoY to 0.16mn MT. Out of this, the company has exported 53K MT. Blended sugar realization was up 3% YoY at INR28.8/kg.

- Management indicated ~8mn MT sugarcane crushing in FY13 vs 6.9mn MT in FY12 on a consolidated basis.

- EID believes sugar production at ~24mn MT during SS13 in India and a domestic price range of INR32-34/kg for near term.

Outlook and valuations: Attractive; maintain 'BUY'

Factoring in Coromandel's lower profitability owing to lower fertilizer volume and other income besides EID's lower sugar realization, we have cut our EPS estimates by ~18% and ~10% for FY13 and FY14 respectively. EID is currently available at an attractive valuation of 8.8x and 6.7x consolidated P/E for FY13E and FY14E respectively. We maintain 'BUY' with a revised target price of INR289/share (INR301 earlier).

Source : Equity Bulls

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