Sunday, February 26, 2006

Reading the fine print - India Glycols

Most investors tend not to look at the notes that come along with each quarterly financial statement. I confess, I am one of 'em. However, after getting some strong advice by Jagadish on the Teledata issue, this is one area i've been trying to evolve in my calculations. A striking example has been seen in the quarterly statements furnished by India Glycols.

First impressions may read the following numbers -
- Q1 profits of 21.16 crs this yr v/s 20.30 crs last yr
- Q2 profits of 13.68 crs this yr v/s 18.55 crs last yr
- Q3 profits of 19.17 crs this yr v/s 19.12 crs last yr

Which means, India Glycols is partially short in it's nine month performance numbers (a PAT of 54.01 crs this yr v/s 57.97 crs last yr). At 2,78,80,000 shares (FV of 10 rupees/share), the nine-month EPS should come to 19.42 rupees/share.

Now read notice note no. 4 in the quarterly report - it reads .. "Income Tax liability (excluding deferred tax Rs. 336 lacs) for the quarter works out to Rs. 455 lacs and for the nine months will be Rs. 1208 lacs (excluding deferred tax Rs. 444 lacs). Full year tax liability (excluding deferred tax ) is estimated at about Rs. 629 lacs. Considering the substantial variation in the quarterly Tax provisions, it has been decided to provide for tax (including deferred tax) at the end of the year."

In simpler terms, India Glycols paid a tax of 35.2 crs on a gross profit of 117.4 crs ... i.e. 30.2% tax on PBT. This yr, the 9 month PBT comes to 80.33 crs, which should be a tax of 24.1 crs. So far the company has provided for zero tax. Extrapolating the numbers available, I would estimate the PBT for Q4 at around 35 crs (which is a little over the median). Less depreciation to this at 8.5 cars and the tax at 24.1 crs .... India Glycols should put up a result of just rupees 3 crores as it's quarter 4 PAT.

This is one stock about to take a beating for this !!!

The revised EPS on the basis of this info for the year (all 12 months) should be 20.5 rupees/share. And hence the P/E ratio would be 8.85.

This is a classical example of the things retail investors miss out on.


Blogger ValueArchitects said...

I think you r wrong - the "tax" appearing on the tax sheet has got to do nothing with the cash flows. Its just an accounting entry!! So its immaterial what they write in P&l for the month!!!

11:38 PM  

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