Riding on the back of distribution network expansion
* Revenue in-line; EBITDA misses, but PAT beats estimates: Overall revenue rose 22.8% YoY to INR1,258m (est. of INR1,281m) in 2QFY18. EBITDA margin shrunk 460bp YoY to 17.1% (est. of 20.9%) on account of a significant increase of 480bp in other expenses to 16.5% of net sales (est. of 11.9%). EBITDA declined 3% YoY to INR215m (est. of INR268m). Accordingly, adj. PAT grew 65.3% YoY to INR89m (est. of INR62m) in 2QFY18, led by higher-thanexpected other income (INR64m v/s est. of INR21m).
* Commencement of distribution via Parle network: 2QFY18 witnessed commencement of product supply through Parle’s distribution network in West Bengal. The company expects to expand distribution gradually to the entire eastern zone in FY18 owing to the traction seen in the pilot phase. Continuous expansion of the distribution network across 4.5m Parle outlets is expected to ensure strong presence of Mango Sip across the country. We expect utilization to inch higher to ~56% by FY19, despite significant capacity addition of 200,000 cases per day, led by the expanded reach of Mango Sip aided by new non-seasonal products.
* Continuous focus on new product launches to reduce seasonality: MANB has been active in the introduction of new products, as witnessed by the launch of Coco Sip and Jeera Sip. The company most recently has developed a new product Siznal, a sugarfree mix of fruit and vegetables, which as of now is in test market phase and should be launched commercially in FY18.
* Valuation and view: We largely maintain our estimates, and expect sales and PAT CAGR of 43% and 56%, respectively, over FY17-19E. We believe that the company will benefit from its expanding distribution network, which would lead to better capacity utilization. We value the stock at a P/E of 32x FY19E EPS, with a TP of INR492 (17% upside) and maintain our Buy rating.
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