Tuesday, August 14, 2012

Karuturi Q1 Sales Down 12% YoY, EBITDA Flat

Sai Ramakrishna Karuturi,
Founder & Managing Director,
Karuturi Global Ltd.

By A Vidya, Staff Reporter:
Tuesday, 14th August 2012, 12:30 PM IST:

Karuturi Global Ltd (BSE: 531687, NSE: KGL) has published its financial results for the first quarter of this fiscal, at BSE.

The standalone and consolidated Q1 results were disclosed at Bombay Stock Exchange after trading hours on Monday.

Karuturi’s consolidated Q1 sales is at Rs. 122.72 crore, which is down by 12.42% year-on-year, and down by 11.05% on a sequential or quarter-on-quarter basis.

However, year-on-year fall in EBITDA at the floriculture major was negligible, down by only 0.52%, from Rs. 29.46 crore a year earlier to Rs. 29.31 crore now. Sequentially, EBITDA has jumped by 43.27%, but which is largely due to the low base formed in Q4, of Rs. 20.45 crore.

KGL’s EBITDA margin for the quarter stands improved at 23.88%, up year-on-year from 21.02%, and jumping from fourth quarter’s low base of 14.83%.

Margin improvement was largely on lower expenditure incurred in Q1 for ‘Consumption of Materials & Other Items’, which went down to Rs. 44.19 crore from Rs. 84.67 crore during previous quarter, and Rs. 69.09 crore in the corresponding year-ago period.

It was enough to offset Karuturi Global’s rising employee costs that went up in this quarter by 18.66% and ‘Other Expenditure’ that went up by 64.18%, both sequentially.

Karuturi Global has not provided details about what caused the dip in ‘Consumption of Materials’ or the surge in ‘Other Expenditure’, in the footnotes to the results.

The company is known to be undertaking a major diversification into various agricultural sectors in Ethiopia, but no revenue or expenditure for the same is seen in the Q1 numbers. The agricultural foray is known to be facing serious headwinds since many quarters.

KGL has clarified in the footnotes to the results that “As the company deals primarily with floriculture and allied products, segment wise figures are not furnished.”

Consolidated ‘Other Income’ has jumped by 2.5 times on a year-on-year basis to Rs. 3.92 crore.

Based on this Other Income, stable EBITDA, and a low base formed in the year-ago period, Karuturi Global’s consolidated net profit has jumped by 50.24% year-on-year, to reach Rs. 15.55 crore.

To put last year’s low quarterly base of Rs. 10.35 crore in perspective, it was the lowest consolidated net profit since June 2007 quarter.

Though there is a deep sequential fall in net profit, the figures from Q4 are not comparable as it had two significant one-off items that formed a large base, as reported by StockExplain News earlier.

Consolidated undiluted Q1 EPS stands at Rs. 0.19, as against Rs. 0.13 in the year-ago period, and Rs. 1.01 in the previous quarter (which was high due to the two one-off adjustments). Trailing Twelve Months (TTM) EPS stands at Rs. 1.95.

If the exceptional quarter of Q4 is removed from the calculation, and the rest three quarters are annualized, TTM EPS stands at Rs. 1.25.

As part of the quarterly results, Karuturi Global has disclosed that it has pending FCCB liability, including interest costs, of US$ 55.08 million, which is around Rs. 303 crore. 

It has further disclosed that it has obtained in-principle approval from RBI for extension of maturity period, by one year, for the purpose of restructuring/re-issuance.

Karuturi Global is yet to tie up the funds required for resolving the mammoth FCCB issue before it, nor has it disclosed the route it intends to take for the same.

Recent restructuring/re-issuance cases in India reveal a change of stance from the affected and new bondholders, who now want higher interest rates as well as lower conversion prices which are very near to current market prices. If Karuturi eventually settles for such a re-issuance model, it can either cause high interest costs or huge dilution or both.

The pending FCCB has been an additional drag on the stock as even its consolidated annual net profit for FY’12 was only Rs. 152 crore, which is only half of its pending FCCB liability.

KGL’s valuations are also affected by its holding company structure, with standalone FY’12 sales accounting for only 4% of the consolidated revenue which it makes through its subsidiaries in Dubai and step-down subsidiaries in countries like Kenya & Ethiopia.

Due to various fundamental issues facing the company including the FCCB, its holding company nature, the serious headwinds facing its agricultural foray, the geopolitical risks in Africa, as well as lack of detailed disclosures, the market is awarding only a TTM P/E multiple of 2-3 years to Karuturi Global Ltd, with the institutional segments of the market avoiding the stock for nearly two years now.

Even more unfortunately for the counter, as StockExplain News had reported thrice during the earlier 3 quarters, some of the already existing institutional investors in the counter like Citigroup and Emerging India Focus Funds were seen steadily offloading their stakes, with retail investors being the only buyers.

Major institutional holders of KGL stock are India Focus Cardinal Fund, Emerging India Focus Fund, Elara India Opportunities Fund, Maxworth Investment, Rays Global Corporation, Tara India Holdings, Sry Crust, & Deutsche Securities Mauritius.

Karuturi Global stock is now trading at Rs. 4.15 in NSE, down by 1.19%, with Nifty trading up by 0.36%.