Buy JOCIL; target of Rs 445: Sushil Finance

“JOCIL has come out with a mixed bag performance for Q4FY11, with Revenue growth of 34.9% YoY and PAT de-growth of 22.6% YoY. During the quarter ended Q4FY11, JOCIL’s Revenue is up by 34.9% YoY and flat QoQ to Rs.1033.2 Mn. The company’s Operating Profit is down by 10.2% YoY to Rs.51 Mn vs top-line growth of 34.9% reason being higher raw material cost. The raw material expenses have increased by 57.1% YoY to Rs.782.2 Mn. Raw Material cost as a percentage of sales has increased by 1102 bps YoY to 75.7%. Higher raw material cost is mainly because of higher palm oil prices. Palm oil prices after making a 35-month high of $1322/MT have cooled off to the levels of $1124/MT lower by 14% QoQ. The company’s operating profit margin is therefore down by 248 bps YoY to 4.9% in the aforesaid quarter. Jocil’s Net Profit has seen a drop of 22.6% YoY in Q4FY11 to Rs.30.9Mn. The Net Profit Margin of the company is down by 223bps to 3%. Its Net Profit Margin is down because of higher raw material cost and rise in the interest cost. Its interest expense has increased substantially from Rs.2.7 Mn to Rs.9.3Mn for Q4FY11. The company’s debt has increased tremendously from Rs.113.1Mn of FY10 to Rs.481.7Mn in FY11 in order to meet the ongoing capex requirement.”

“The Chemicals segment (Fatty Acid) revenue has increased by 33.3% YoY to Rs.536.9Mn, while that of Soaps division has increased by 27% YoY to Rs.591.6Mn. As far as segmental margins (PBIT) are concerned, chemical segment’s margins have decreased by 400 bps to 4.9%, while soap segment has reported a 160 bps drop in margin to 5.5% for Q4FY11. FY11: For FY11 the Revenue is up by 26.8% YoY to Rs.3825.1 Mn. The Operating Profit of the company is flat at Rs.342.5 Mn, with operating profit margin at 9% down 242 bps YoY. The Net Profit for FY11 has decreased by 9.2% YoY to Rs.194.1Mn. Its PAT margin is down by 200bps to 5.1%. The company has declared a dividend of 80% for FY11 vs 100% of FY10. Dividend Payout ratio for FY11 stands at 18.3% vs 20.8% of FY10.”

“Jocil Ltd., a subsidiary of Andhra Sugars, has come out with a mixed bag performance for Q4FY11. The Company has grown at a CAGR of 50% in the last three years driven by rising volumes. Further capacity expansion is likely to result into a 20.5% volume growth for the next two years. Considering the fortune linked with Indian FMCG consumption, marquee clientele, sustainable volume growth, higher dividend payout and Strong Balance sheet we maintain a positive stance on the company. However keeping in mind the spiraling raw material prices we revise our EPS estimates downward for FY12 by 33% to Rs.36.8, and introduce FY13 numbers. We maintain our BUY rating on the stock with a target price of Rs.445,” says Sushil Finance research report.

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