CRISIL maintains valuation grade of 5/5 to Emmbi Polyarns

Emmbi Polyarns Ltd’s (Emmbi’s) Q4FY12 results were below CRISIL Research’s expectations. Earnings disappointed due to high interest cost and tax outgo of 78%. The tax rate was high as it did not avail MAT credit this quarter. FY13 and FY14 revenue and EBITDA estimates are maintained while earnings estimates are lowered by 22% and17% respectively to factor in high interest cost due to increased debt. We maintain our fundamental grade of 2/5, indicating that its fundamentals are moderate relative to other listed securities in India.

Q4FY12 result analysis:

• Revenue increased by 40.3% y-o-y (10.9% q-o-q) to Rs 310 mn driven by increased volumes from expanded capacity and steady demand from overseas markets. Export contribution increased from 36% in FY11 to 49% in FY12.
• EBITDA margin increased by 111 bps y-o-y to 9.0% due to higher contribution from highmargin value-added products, which increased to 18% in FY12 (19% in Q4FY12) from 14% in FY11. However, EBITDA margin remained flat q-o-q despite 90 bps increase in contribution from value-added products q-o-q as other expenditure increased by 37% during the same period.
• There was a significant increase in interest cost from Rs 7 mn in Q3FY12 to Rs 13 mn in Q4FY12 due to increase in debt. The tax rate for Q4FY12 was 78.2% compared to 26.6% in Q4FY11 (excluding tax adjustment for previous years) and 27.4% in Q3FY12, as the company did not avail MAT credit in Q4FY12. Consequently, adjusted PAT declined by 69% y-o-y (78% q-o-q) to Rs 2.3 mn in Q4FY12. Adjusted EPS was Rs 0.1.
• The working capital cycle was 175 days compared to 172 days in FY11.

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