Innoventive Industries - Q3FY13 results lower than expectations - Aditya Birla Money

Innoventive Industries' (IIL) Q3FY13 results were below our expectations on account of lower-than-expected volumes in the CEW tubes and OCTG segment.

IIL's standalone revenue grew 5.0% YoY and declined 5.9% QoQ to Rs. 1.7bn. The YoY growth was mainly on account of a 13.8% YoY growth in the motor vehicles parts business.

- IIL's standalone adjusted EBITDA for the quarter declined 3.2% YoY and 11.9% QoQ to Rs. 407.5mn on account of (1) margin pressure in the tubes & products segment due to slowing demand both domestically and overseas and (2) higher employee costs. Of the QoQ increase of ~31mn in employee costs, about Rs. 20-21mn pertained to H1FY13 as the increase in wages were given effect from April1, 2012. Standalone adjusted PAT declined 10.9% YoY and 19.2% QoQ to Rs. 189.9mn on account of lower EBITDA and higher depreciation.

- Industrial promotion subsidy booked during the quarter was ~Rs. 70mn.

- During the quarter, IIL's OCTG business' revenues declined 15.5% QoQ to Rs. 297.2mn on account of slower global economic growth.

- During the quarter, sales volume of CEW tubes and membrane strips grew 20.8% YoY and 32% YoY to 7,685 tonnes and 3,761 tonnes respectively. Sales volume of the lowmargin ERW tubes declined 51.6% YoY to 3,850 tonnes. Although the fall was primarily due to higher captive consumption for increased production of the high-margin CEW tubes, sales of ERW tubes were lower than our expectations.

- For the quarter, Innoventive consolidated PAT declined 13.1% YoY and 27.1% QoQ to Rs. 172.9mn.

Outlook and valuations - IIL's cost competitiveness and ability to do high product customisation through product and process engineering makes it well placed to drive exports in CEW tubes and volume growth in membrane panel strips. However, the weak global economy might lead to lower-than-expected growth in export volumes in CEW tubes for IIL. We reduce our volume assumptions for CEW tubes and ERW tubes for FY13E and FY14E. Factoring in lower sales volume, slight margin weakness and higher employee costs, we decrease our EPS estimates for FY13E and FY14E by 13.8% and 6.4% to Rs. 14.1 and Rs. 18.8 respectively. With the revision of our earnings estimates downwards and quarterly rollover of our 1 year forward SOTP value of IIL, our 1 year target price decreases by 4.2% to Rs. 163 per share. Our target price implies a potential upside of 20.2%. We maintain our Buy rating on IIL.

Source : Equity Bulls

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