Wednesday, May 16, 2012

Karuturi Global’s Q4 Operating Profit Down 48%, Sales Down 25%

By Special Correspondent:

Karuturi Global Ltd (BSE: 531687, NSE: KGL) has announced its standalone and consolidated results for Q4 and FY’12.

The floriculture company headquartered in Bangalore, and having rose cultivation in Kenya, Ethiopia, & India, has delivered an exceptionally poor set of core operational numbers for this last quarter of FY‘12.

Consolidated sales in Q4 is down by 24.81% on a year-on-year basis, and is down by 3.14% on a quarter-on-quarter basis.

Consolidated operating profit for the fourth quarter has nosedived by 47.92% on YoY basis, and is down by 31.83% on a sequential basis.

However, the biggest jolt for investors has come in consolidated EBITDA margins, which stands at just 14.83% in Q4, down sharply from 35.78% in Q3, and 40.67% in Q4 of last fiscal.

Despite the many operational woes facing the company, a superior EBITDA margin was said to be the main attraction for this stock, which now stands decimated.

Much of the damage in EBITDA is due to a sharp up-tick in expenditure, especially in the head ‘Consumption of Materials & Other Items’ which has jumped by 56.57% sequentially and 94.26% on a year-on-year basis.

The company has, however, not provided an explanation for this in the footnotes of the results.

KGL has anyway tried to prop up these kind of weak numbers in this quarter with two one-off items.

Firstly, ‘Other Income’ in Q4 is Rs. 15.65 crore, which is a jump of nearly 240%, from both Q3 and Q4 of last fiscal. This has made Other Income nearly 76.50% of EBITDA this time. However, no explanation has been provided for this in the notes to accounts.

The next one-off item in this Q4 result is an ’Exceptional Item’ of Rs. 43.48 crore, which is 213% of Q4 EBITDA. However, as per the explanation provided by the company, this is not a real cash income but an accounting treatment due to a re-computation of deprecation on fixed assets of KGL’s foreign subsidiaries, to conform with Indian standards in a uniform fashion.

However, another ‘Exceptional Item’ expected by investors, amounting to Euro 5.65 million or nearly Rs. 39 crore has not made its appearance in Q4. Though the company had promised in Q3 analyst call that this would most probably appear in Q4 P&L, it has not happened.

Instead, Karuturi has now clarified in the Q4 result that this amount has been credited to Goodwill Account, which is clearly a Balance Sheet item. 

This Rs. 39 crore was lying in an escrow account until now, with regard to an acquisition related dispute in Kenya, which was recently settled in favour of Karuturi. The company now has access to this amount, but it is not clear why it has been credited to Goodwill, instead of being shown as an Exceptional Item in P&L.

Anyway, powered by the ‘Exceptional Item’ of Rs. 43.48 crore due to re-computation of deprecation on foreign assets, and ‘Other Income’ of Rs. 15.65 crore, Karuturi Global has managed to record a net profit of Rs. 81.15 crore in Q4, which is 90.87% higher sequentially, and 86% higher on a year-on-year basis.

For the whole year, Karuturi’s consolidated sales has fallen by 13.24%, while consolidated net profit has fallen by 2.05%. The fall in net profit would have been much worse if not for the Exceptional Item and Other Income in Q4.

FY’12 EBITDA has fallen by 31% to Rs. 164.45 crore, from Rs. 238.33 crore in the previous fiscal. EBITDA margins for the whole year has fallen by 7.64%, to 29.67% from 37.31% in the previous year.

Though the company is undertaking a major diversification into agriculture in Ethiopia, there has been no mention of any revenue or expenditure regarding that in the Q4 results. This foray has been facing much headwinds in recent quarters.

Karuturi Global stock has lost 87% from its peak value during the last 18 months, and has failed to rebound meaningfully. 

Apart from all its operational pressures, one element weighing in on KGL is an upcoming FCCB redemption in October 2012, amounting to Rs. 216 crore, whereas its consolidated net profit for FY’12 has been Rs. 151.80 crore.

On Wednesday, 16th May, Karuturi Global closed trade in NSE at Rs. 5.05, up by 3.06%.

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