Welcome to Sana Securities! Login | Subscribe Now.

Advanta Equity Research

HomeCompanyAdvanta Equity Research

Date of Research – 12 January 2016

Price – Rs. 437.55

About the Company

Advanta Limited (“Advanta” or the “Company”) is an associate company of United Phosphorus Limited (UPL), an Indian Agrochemical Company. Advanta Limted is an Indian Plant Genetics company with a global presence. Advanta has its presence in Asia, Africa, Australia, South America, North America and Europe. The Company export high quality seeds to about 25 other countries. The Company is engage in the research, development, production and marketing of high yielding hybrid seeds of crops. The Company promotes sustainable agriculture through innovative research and technology. Advanta is a world leader in sorghum (grain, forages and sweet) and has a strong position in tropical corn, sunflower, canola, sweet corn and vegetables. Advanta is currently embarking upon aggressive growth strategy in many developing countries in Africa, Asia and Latin America.

*till FY 2014 , Financial year was from January to December.

For FY 2016, the Company announced results for fifteen months period ended March 31, 2016.

The Company has merged with UPL (formerly known as United Phosphorous).

Key Financial Figures

Consolidated (Rs. Cr)
Particulars FY 2011 FY 2012 FY 2013 FY 2014 FY 2016
Total Income from Operations 949.60 1,067.95 1,255.08 1,512.55 1,669.78 
Expenses 816.30 900.12 1,068.10 1,268.84 1,384.61 
Earnings Before Other Income, Interest, Tax and Depreciation (Operating Profit) 133.30 167.83 186.98 243.71 285.17 
Depreciation 26.46 32.38 36.80 39.49 51.22 
Finance Costs 82.60 67.99 92.99 119.83 69.16 
Other income 2.55 5.05 7.48 6.50 70.66 
Exceptional items 2.38 4.70 16.69 8.88 75.21 
PBT 24.41 67.80 47.99 82.01 160.25 
Tax 11.49 8.44 3.51 (1.52) 62.32 
Extraordinary items 0.63 (25.63) 
PAT (before Minority Interest and share of Associates) 12.29 59.36 44.49 83.54 123.56 
Profit/ (loss) attributable to Minority Interest – 
Share of profit / (loss) of Associates – 
Consolidated Profit / (Loss) for the year 12.29 59.36 44.49 83.54 123.56 

Profitability Analysis

Consolidated (%)
Particulars FY 2011 FY 2012 FY 2013 FY 2014 FY 2016 
Operating Profit Margin Ratio 14.04 15.72 14.90 16.11 17.08 
Net Profit Margin Ratio 1.29 5.56 3.54 5.52 7.40 

Operating profit margin is a measurement of the proportion of a company’s revenue that is left over after paying for production costs such as raw materials, salaries and administrative costs. Net profit margin is arrived at by deducting non operating expenses such as depreciation, finance costs and taxes out of operating profit and shows what is left for the shareholders as a percentage of net sales. Together these ratios help in understanding the cost and profit structure of the firm and analysing business inefficiencies.

Key Balance Sheet Figures

Sources of Funds / Liabilities (Rs. Cr)
Particulars FY 2010 FY 2011 FY 2012 FY 2013 FY 2014
Share Capital 16.92 16.85 16.86 16.87 16.87
Reserves & Surplus 485.83 525.02 549.70 604.65 731.47
Net worth (shareholders funds) 502.74 541.87 566.56 621.51 748.34
Minority Interest
Long term borrowings 608.25 479.23 449.61 462.18 463.83
Current liabilities 250.32 476.89 541.89 956.91 919.12
Other long term liabilities and provisions 9.97 11.80 14.24 16.84
Deferred Tax Liabilities 14.22 19.37 20.92 4.82 7.56
Total Liabilities 1,375.53 1,527.34 1,590.79 2,059.66 2,155.69

 

Application of Funds / Assets (Rs. Cr)
Particulars FY 2010 FY 2011 FY 2012 FY 2013 FY 2014
Fixed Assets 710.63 745.64 729.04 762.93 742.29
Noncurrent Investments 0.01 0.01 0.01 0.01 0.01
Current assets 601.97 677.79 751.35 1,168.38 1,269.25
Long term advances and other noncurrent assets 0.53 29.35 33.59 50.96 36.86
Deferred Tax Assets 62.39 74.55 76.82 77.38 107.29
Total assets 1,375.53 1,527.34 1,590.79 2,059.66 2,155.69

Efficiency Analysis

  (%)
Particulars FY 2010 FY 2011 FY 2012 FY 2013 FY 2014
ROCE 6.42 13.05 16.52 17.25 20.11
ROE / RONW (5.46) 2.27 10.48 7.16 11.16

Return on Capital Employed (ROCE) measures a company’s profitability from its overall operations by calculating the return generated on the total capital invested in the business (i.e. equity + debt). Return on Equity (ROE) or Return on Net Worth (RONW) measures the amount of profit which the company generates on money invested by the equity shareholders. In short, ROE draws attention to the return generated by the shareholders on their investment in the business. Together these ratios can be used in comparing the profitability of the company with other companies in the same industry.

Valuation Analysis

Consolidated
Particulars FY 2011 FY 2012 FY 2013 FY 2014 FY 2016
Total Income from Operations (Rs. Cr.) 949.60 1,067.95 1,255.08 1,512.55 1,669.78 
Growth (%) 35.18 % 12.46 % 17.52 % 20.51 % 10.39 % 
PAT (Rs. Cr.) 12.29 59.36 44.49 83.54 123.56 
Growth (%) 141.41 % 382.99 % (25.06 %) 87.77 % 47.90 % 
Earnings Per Share – Basic (Rs. ) 7.29 35.21 5.28 9.90 13.00 
Earning Per Share – Diluted (Rs. ) 7.23 28.87 4.67 8.25 5.84 
Price to Earnings 6.45 6.65 24.82 55.60 82.99 

Dividend History

The Company has maintained an average dividend yield of 0.09 % over the last 5 financial years.

Liquidity and Credit Analysis

Current Ratio

Higher current ratio implies healthier short term liquidity comfort level. A current ratio below 1 indicates that the company may not be able to meet its obligations in the short run. However, it is not always a matter of worry if this ratio temporarily falls below 1 as many times companies squeeze out short term cash sources to achieve a capital intensive plan with a longer term outlook. Advanta’s average current ratio over the last 5 financial years has been 1.56 times.

Long Term Debt to Equity Ratio

Companies operating with high debt to equity on their balance sheets are vulnerable to economic cycles. In times of slowdown in economy, companies with high levels of debt find it increasingly difficult to service the interest on their borrowings as profit margins decline. We believe that long term debt to equity ratio higher than 0.6 – 0.8 could affect the business of a company and its results of operations.

Advanta’s average long term debt to equity ratio over the last 5 financial years has been 0.85 times which indicates that the Company operates with slightly high debt.

Interest Coverage ratio

Interest coverage ratio indicates the comfort with which the company may be able to service the interest expense (i.e. finance charges) on its outstanding debt. Higher interest coverage ratio indicates that the company can easily meet the interest expense pertaining to its debt obligations. In our view, interest coverage ratio of below 1.5 should raise doubts about the company’s ability to meet the expenses on its borrowings. Interest coverage ratio below 1 indicates that the company is just not generating enough to service its debt obligations.

Advanta’s average interest coverage ratio over the last 5 financial years has been 1.83 times which indicates that the Company has been generating enough for the shareholders after servicing its debt obligations.

Ownership pattern

In its latest stock exchange filing dated 31 March 2016, Advanta reported a promoter holding of 72.99 %. Large promoter holding indicates conviction and sincerity of the promoters. We believe that a greater than 35 % promoter holding offers safety to the retail investors.

At the same time, institutional holding in the Company stood at 17.23 % (FII+DII). Large institutional holding indicates the confidence of seasoned investors. At the same time, it can also lead to high volatility in the stock price as institutions buy and sell larger stakes than retail participants.

About the Author

Rajat Sharma pictureRajat Sharma is a well known stock market analyst and commentator. He has covered Indian markets for over a decade and is regarded for consistently identifying early stage investment opportunities. Attorney by qualification, Rajat has done extensive work for improving corporate governance and disclosure standards.

 

Leave a Comment