12 November, 2008

Net revenue growth of 67%:

 K S Oil’s(KSO) Top-line grew 67% yoy to Rs733.6cr Rs439.8cr) in 2QFY2009.The growth in net revenues was on account of a average 30% yoy rise in oil prices. This was supplemented by volume growth, which rose by 16.7% during the quarter. On a half-yearly basis, the net revenue increased tremendously by 78% to Rs1,426.3cr
(Rs803.3cr).

EBITDA up by 59%:

Company had  EBITDA of Rs82.3cr (Rs51.8cr) registering a yoy growth of 59%, on the back of strong volume growth as well as better realisations. Although Operating profits grew, the EBITDA Margins declined by 57bps to 11.2%.The EBITDA margins for 1HFY2009 stood at a robust 11.1%.

Bottom-line growth impressive:

The company’s Bottom-line grew yoy 59% to Rs42.2cr (Rs26.6cr) during 2QFY2009. It reported an EPS of Rs1.3 (Rs1.0). The growth in bottom-line is even more impressive considering the fact that Interest expenses increased by 69.3% to Rs16.1cr (Rs9.5cr) during the quarter. KSO’s net profit for 1HFY2009 stood at Rs83.2cr (Rs50.1cr) up by 66.2%.

New plants :

KSO commissioned two new manufacturing plants in Ratlam (Madhya Pradesh) and Kota (Rajasthan) during the quarter. The company’s new plant in Guna (Madhya Pradesh) is expected to be commissioned by the end of FY2009.

Improving Operational Efficiency

All the divisions of the company reported a yoy rise in Revenues. Revenues of the Solvent Division stood at Rs715.2cr(Rs432.0cr) recording a robust yoy growth of 65.5%. The Revenues of Vanaspati Division too jumped 77% and stood at Rs18.4cr (Rs10.3cr). The Power Division Revenues jumped almost eight times and stood at Rs8.4cr (Rs1.1cr). All major brands of KSO witnessed robust growth. Double Sher clocked growth of 62.7% to Rs138.7cr (Rs85.3cr), Kalash grew 42.5% to Rs140.4cr (Rs98.5cr), KS Refined witnessed a growth of 99.7% to Rs165.3cr (Rs82.8cr) and KS Gold Vanaspati clocked growth of 72.1% to Rs17.6cr (Rs10.3cr).

Other Developments

During the quarter, KSO commissioned two new manufacturing plants in Ratlam and Kota. In Ratlam, the company commissioned a 1,000MT Solvent Extraction plant and in Kota it commissioned a 1,200MT Mustard Oil plant. The company is expected to commission a 600MT Solvent Extraction plant in Guna by the end of FY2009.

Future and Price

KSO, which is one of the leading players in the Indian Edible Oil industry, has been improving its Profitability owing to its increasing focus on its Branded business. In FY2008, contribution from Branded sales increased to 60% from 48% in FY2005. Going ahead, we expect KSO to leverage its strengths in the Distribution network to complement its thrust on the Branded segment. At the CMP, the stock is trading at 8.1x FY2009E and 6x FY2010E Earnings and 1.3x FY2010E P/BV. We lower our target P/E multiple to 7X FY2010E on account of the overall contraction in the valuation multiples. We maintain a BUY on the stock with the revised target price of Rs47 (Rs61), implying a 15% upside from the current level.