JKSB reviews Expolanka’s 1Q performance

Expolanka’s 1Q is not strictly comparable with the previous June 2010 numbers since it does not take into account the restructuring done in FY10, which most importantly saw the sale of two business units in the December 2010 quarter.

When adjusted for this, 1Q revenue shows a 9.6% reduction from the previous year but PAT increases by 28.0% YoY. Expolanka’s financial year is driven by the seasonality of retail fashion (which is the main driver for the Transportation segment), with FY10’s December quarter accounting for 35% of full year revenue.

Unadjusted segment earnings have shown improvements apart from International Trading which moved from Rs.52.5m OP to a Rs.6.7m operating loss. Expolanka Teas is showing improvement in the order book after a quiet first quarter. Much of the International Trading segment is driven by imports and exports of perishable food items like fruits and vegetables. The segment marked as ‘Others’ is a combination of Group functions which are now basically cost centres and have no internal revenues post FY10’s restructuring.

Expolanka’s longer term and shorter term borrowings have decreased both sequentially and YoY. Longer term borrowings in particular have declined by 78.0% YoY and 54.7% sequentially mostly thanks to the equity received through the IPO.

Because of this the company has moved to a net cash position of Rs.1, 455m. Financing costs have declined sharply by 40.5% from an year ago. With IPO proceeds only being available to the company after the first week of June, finance costs should continue to trend lower. Lower financing costs should have a significant impact on the International Trading segment in particular which can have larger working capital requirements than the firm’s other segments.

We expect the company to make an EPS of 1.03 for FY12 and at Rs.13.00 it trades at 12.6x. The company announced an interim dividend of Rs.0.12 per share. We feel that the EXPO’s ability to leverage close relationships with customers into regional and global expansion will continue to drive earnings of the core transportation segment and that the IPO’s equity financing will also drive expansion of the International Trading segment and give Expolanka the chance to look at new business opportunities.