JANUARY 19: SRF Ltd has once again reported a good set of results in thecurrent financial year. Q3 net profit is up only marginally over thecorresponding period, from Rs 6.4 crore to Rs 6.7 crore. But the reason forthe lack of growth in the Q3, 2000, net profit is the extraordinarywrite-offs, amounting to Rs 10.9 crore. Profit before extra-ordinary itemshave nearly tripled.The latest results from SRF once again is a very positive development forthe stock, like the Q2 results, and continues to justify the steep re-ratinggiven to it.
The stock has returned 500 per cent in the last one year. The company hasbeen involved in a business restructuring for a couple of years now and thepositive effect of that exercise is finally beginning to be felt.
The company reported a first half profit of Rs 17.4 crore as against Rs 7.5crore for the corresponding first half last year and Rs 13.5 crore for thewhole of the last financial year. That profit figure too would have beenmuch higher, had it not been for write-off against NPAs amounting to Rs 18.8crore. Q4 is expected to once again be substantially better, also given thatthe corresponding period last year had recorded a loss. There have beenimprovements in volumes as well as in selling prices, during the year, whichhas shown up in the quarterly performance.
The company's restructuring began a couple of years ago with the sale of itsinvestments in unrelated businesses and companies, with the latest salebeing that of Shriram Bearings a little over a month ago. This produced thecash for the company to acquire new capacities, especially in nylon tyrecord, consolidating its hold in the industry. Its latest acquisition is a6,500 tonne nylon 6,6 unit from Dupont Fibres Ltd, an EI Dupont subsidiary.This acquisition will enable the company to cater to the radial tyremanufacturers, almost all of whom have been adding capacities. Therestructuring also saw it offload stakes in SRF Nippondenso, SRFInternational and shed other investments and divisions.
Even though things are improving and the stock also has begun to reflect theearnings potential; the real re-rating will come when there are signs of itsinter-group investments easing.
In the last financial year, interest cost absorbed 67 per cent of theoperating profit. The funds raised at the time had not gone into repayingdebt. Instead, a large portion of these funds continued to find its way togroup companies either in the form of advances or equity. The return oncapital employed has barely hovered around 10 per cent in the recent past.The market will be looking towards a major improvement here.
Copyright © 2000 Indian Express Newspapers (Bombay) Ltd.