Ashok Alco-Chem Ltd. :524594-IN: Earnings Analysis: Q3, 2017 By the Numbers : March 23, 2017

Ashok Alco-Chem Ltd. reports financial results for the quarter ended December 31, 2016.

We analyze the earnings along side the following peers of Ashok Alco-Chem Ltd. – Indian Link Chain Manufacturers Ltd. and Yarn Syndicate Ltd (504746-IN and 514378-IN) that have also reported for this period.

Highlights

  • Summary numbers: Revenues of INR 389.52 million, Net Earnings of INR 12.36 million.
  • Gross margins narrowed from 59.11% to 19.49% compared to the same period last year, operating (EBITDA) margins now 5.05% from 5.64%.
  • Narrowing of operating margins contributed to decline in earnings.

The table below shows the preliminary results and recent trends for key metrics such as revenues and net income growth:

2016-12-31 2016-09-30 2016-06-30 2016-03-31 2015-12-31
Relevant Numbers (Quarterly)
Revenues (mil) 389.52 386.11 429.88 605.65 1139.78
Revenue Growth (%YOY) -65.82 -55.29 -42.94 -21.9 9.24
Earnings (mil) 12.36 10.73 11.41 10.28 41.21
Earnings Growth (%YOY) -70 -73.82 -63.57 -74.13 2.01
Net Margin (%) 3.17 2.78 2.65 1.7 3.62
EPS 2.69 2.33 2.48 2.23 8.96
Return on Equity (%) 10.12 8.79 9.79 8.82 41.8
Return on Assets (%) 4.28 3.71 3.29 2.96 10.2

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Market Share Versus Profits

Revenues History
Earnings History

524594-IN‘s change in revenue this period compared to the same period last year of -65.82% is almost the same as its change in earnings, and is about average among the announced results thus far in its peer group, suggesting that 524594-IN is holding onto its market share. Also, for comparison purposes, revenues changed by 0.88% and earnings by 15.19% compared to the immediate last period.

Revenues Growth Versus Earnings Growth

Quadrant label definitions. Hover to know more

Leader, Earnings Focus, Laggard, Revenues Focus

Earnings Growth Analysis

The company’s year-on-year decline in earnings was influenced by a weakening in gross margins from 59.11% to 19.49%, as well as issues with cost controls. As a result, operating margins (EBITDA margins) went from 5.64% to 5.05% in this time frame. For comparison, gross margins were 19.79% and EBITDA margins were 4.51% in the previous period.

Gross Margin Versus EBITDA Margin

Quadrant label definitions. Hover to know more

Differentiated; Low Cost, Commodity; Low Cost, Commodity; High Cost, Differentiated; High Cost

Gross Margin Trend

Companies sometimes sacrifice improvements in revenues and margins in order to extend friendlier terms to customers and vendors. Capital Cube probes for such activity by comparing the changes in gross margins with any changes in working capital. If the gross margins improved without a worsening of working capital, it is possible that the company’s performance is a result of truly delivering in the marketplace and not simply an accounting prop-up using the balance sheet.

Gross Margin History
Working Capital Days History

524594-IN‘s decline in gross margins has not produced any significant offsetting improvement in its working capital . This leads Capital Cube to conclude that the decline in gross margins are likely from operating issues and not trade-offs with the balance sheet. Working capital days are currently 86.13 days, compared to last year’s level of 20.82 days.

Gross Margin Versus Working Capital Days

Quadrant label definitions. Hover to know more

Customer Financed, Cash Starved, Supplier Financed, Cash Rich

Margins

The company’s decline in earnings has been influenced by the following factors: (1) Decline in operating margins (EBIT margins) from 5.44% to 4.37% and (2) one-time items that contributed to a decrease in pretax margins from 5.71% to 3.83%

EBIT Margin Versus PreTax Margin

Quadrant label definitions. Hover to know more

Operation driven Earnings, One-time Favorables, Low Earnings Base, One-time Unfavorables
EBIT Margin History
PreTax Margin History

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Company Profile

Ashok Alco-Chem Ltd. engages in the manufacture of chemicals. This includes the manufacture and marketing of industrial alcohol, acetic acid and other downstream products which include ethyl acetate for industrial use in pharma, ink, paint, adhesive, resin, flexi packaging, perfumery and many other industries. It operates through the Chemical and Global Trading Division segments. The company was founded on November 18, 1992 and is headquartered in Mumbai, India.

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