CRISIL maintains valuation grade of 1/5 to Sanwaria Agro

Sanwaria Agro Oils Ltd’s (Sanwaria’s) Q3FY12 results were significantly below CRISIL Research’s expectations as the company posted 23% y-o-y decline in its top line for the quarter and saw its earnings halve compared to Q3FY11. We had expected the company’s performance to improve in Q3 led by palm oil trading revenues and some price recovery in soya oil market seen during December 2011. We are likely to lower our estimates post discussion with the management. We maintain the fundamental grade of 2/5.

Q3FY12 result analysis
• Revenues declined nearly 23% y-o-y and 14% q-o-q. For 9MFY12, revenues declined by 8.7% compared to 9MFY11.

• EBITDA margin contracted by 75 bps y-o-y to 2.9%, but increased sequentially. Raw material cost as a percentage of sales increased by 101 bps, which we believe is on account of lower realisations. Employee
cost also rose by ~10% y-o-y. Increase in expenses was partially offset by 28% y-o-y dip in other expenses.

• PAT margin declined by 63 bps y-o-y to 1.2%, whereas de-growth in absolute PAT was ~49%. EPS for the quarter was Rs 0.12

• For 9MFY12, Sanwaria reported EPS of Rs 0.36, 52% lower compared to 9MFY11. EPS was Rs 0.8 in FY11.

Valuation: Current market price has strong downside
We maintain our fair value at Rs 15 per share for Sanwaria. At the current market price of Rs 22, the valuation grade is 1/5.

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