The company witnessed big drop in margins. Net profit would have dropped further if not for big surge in other income and big cut in tax provision.

Quarterly Performance

The company witnessed decline in the raw material cost during secondquarter ended September2016 despite increase in rubber price on yoy basis. But big increase in other expense and employee cost (as a % of sales, net of stock adjustment) put pressure on margins. The raw material cost as % of sales net of stock adjustments has declined 250 bps to 44.5%. The employee cost rose 10bps to 13.9% in Q2 FY 16-17. Other expenses rose 110 bps to 19.93%. Resultantly, operating margins slipped 190 bps 14.2%. Operating profit fell 10% to Rs438.4 crore on a y-o-y basis.

Domestic prices of natural rubber, which makes up more than 50% of the cost of a tyre, increased to around Rs 141 per kg in July 2016. But then prices decreased to around Rs 121 in Sept 2016. Prices were around Rs 110-115 in the same quarter a year ago. Previous to this, rubber prices had been trading lower on persistent worries about slower economic growth in the main consumer, China, and oversupply.

With 161% rise in other income to Rs42.97 crore, PBIDT fell 4% to Rs481.4crore. Interest cost fell 1% to Rs26.28 crore. Depreciation cost decreased 2% at Rs105.8crore. Thus, PBT before EO registered 5% drop to Rs349.27 crore. Last year the company incurred an EO income of Rs 47.7 crore. Hence PBT after EO fell 16% at 349.27 crore. After considering 720 bps decrease in the effective tax rate at around 25.5% and 35% drop in tax provision, PAT fell 7% at Rs260.18 crore.

During the quarter, the company earned 63% and 27% of its revenues from APMEA (Asia Pacific, Mid East and Africa) and EA (Europe Americas)respectively. Revenues from APMEA fell 8%. EA registered 30% rise in revenues. The other segment comprising of other business entities which constitutes 10% of overall revenues, registered 58% rise in income.

At the segment front, APEMA business witnessed 8% drop in PBIT at Rs 311.33crore and constituted 85% of the total segment profit. Segment profit of EA operations rose 5% to Rs45.26 crore and constituted 12% of segment profit. Profit from other segment stood at Rs 11.62 crore, rise of 60%.

Half Yearly Performance:

For the first half ended September 2016, the company posted 9% rise in net income to Rs 6397 crore and 2% rise in net profit to Rs 575 crore.

The raw material cost as % of sales net of stock adjustments has declined 300 bps to 43%. The employee cost rose 25 bps to 13.5% in H1 FY 16-17. Other expenses rose 125 bps to 20.4%. Resultantly, operating margins slipped 160 bps 15.3%. Operating profit fell 2% to Rs977.3 crore on a y-o-y basis.

With 106% rise in other income to Rs69.92 crore, PBIDT rose 2% to Rs1047.2 crore. Interest cost rose 3% to Rs53.22 crore. Depreciation cost increased 6% at Rs211.18 crore. Thus, PBT before EO registered 1% rise to Rs782.16 crore. Last year the company incurred an EO income of Rs 47.7 crore. Hence PBT after EO fell 5% at 782.16 crore. After considering 500 bps decrease in the effective tax rate at around 26.5% and 20% drop in tax provision, PAT rose 2% at Rs575 crore.

During the period, the company earned 64% and 27% of its revenues from APMEA (Asia Pacific, Mid East and Africa) and EA (Europe Americas) respectively. Revenues from APMEA fell 2%. EA registered 37% rise in revenues. The other segment comprising of other business entities which constitutes 9% of overall revenues, registered 153% rise in income.

At the segment front, APEMA business witnessed 3% drop in PBIT at Rs672 crore and constituted 81% of the total segment profit. Segment profit of EA operations rose 11% to Rs136.64 crore and constituted 17% of segment profit. Profit from other segment stood at Rs 18.2 crore, rise of 260%.

The stocks is trading around Rs 186at BSE currently.