Higher depreciation, increased finance cost and higher salaries led to a drastic drop in the bottomline of Yuken India, a parts and ancillary manufacturer

Yuken India, a parts and ancillary manufacturing company, has reported abysmal results for the quarter ended 30 September 2012. Its net profit plummeted by 82% year-on-year (y-o-y), to Rs41 lakh. However, its net sales declined marginally, by 5% y-o-y, from Rs40.61 crore recorded on 30 September 2011, to Rs38.70 crore for the current September quarter. The culprits were higher depreciation, interest costs and higher salaries. The stock tanked by 10.98% on Bombay Stock Exchange (BSE) and ended the day at Rs150.40.
 

An analysis of Moneylife database on the company shed some light on the reason for poor performance. In fact, this is the first time in four years that sales have actually declined. Until then, it had been growing steadily and consistently. Global economic troubles meant that the export market was challenging, with demand falling. However, what is worrying the company is its operating parameters. Its operating profit plummeted by a whopping 47%, which is way below its three-quarter y-o-y average of -13%. Higher salaries meant retention of talent in tougher times. It suffered badly only in the last two quarters, whereas before that it was growing steadily. However, the biggest blow was the net profit, which declined by 82%. This was due to higher depreciation and finance cost, which increased by around 66% and 50%, respectively. Despite this, the company has a decent return on equity (ROE) of 18%. Its valuation is on the lower end, with market capitalization at over five times operating profit.
 

The company has a tie-up with Yuken Kogyo Company (YKC), based out of Japan, which holds 40% of the joint-venture while Indian promoters—Benefic Investments and Finance, along with the Rangachar family—hold around 12.54%. This shareholding pattern has been the same for a long time, indicating total commitment to the business. In the past 34 years, YIL has achieved the fastest growth rate in the oil hydraulics segment in India. Most manufacturers of original equipment have accepted YIL as their preferred partners for hydraulics.
 

Yuken India manufactures pumps and valves for major industrial segments including steel plants and steel mills, machine tool manufacturers, plastic machinery manufacturers, defence, automobile manufacturers, hydraulic presses, drill rig manufacturers, power projects and the cement industry.