Growth trajectory to improve
Nilkamal Ltd's Q2FY18 numbers were broadly in line with our estimates. Net revenue degrew marginally by 0.8% YoY, impacted by poor volume offtake in Plastics division due to GST transition. However, operating profit & PAT increased by 11.7% & 5.9% YoY respectively, while operating margins improved by 139bps YoY, which was encouraging. We remain positive on Nilkamal's medium to long term growth prospects, given robust outlook of plastics industry and company's efforts towards brand building, distribution expansion and enhanced product offerings. We maintain BUY on the stock with target price of Rs 2,097.
Q2FY2018 Result Update
* Net Revenue (standalone) declined marginally by 0.8% YoY to Rs 464.7cr, impacted by GST transition. The Plastics business reported volume and value de-growth of 4% & 2% respectively. The retail division '@home' also witnessed below par performance during the quarter. However, growth in mattress business was healthy at 73% (revenue stood at Rs 15.2cr).
* EBITDA (standalone) grew by 11.7% YoY to Rs 57.3cr, while EBITDA margins expanded 139bps to 12.3% (highest in last 5 quarters), aided by 261bps YoY decline in material cost / net revenue. However, further gains in margin were restricted due to higher employee & other expenses. PAT growth was relatively lower at 5.9% YoY (Rs 27.8cr), impacted by higher tax expense.
* Other key highlights: i) JV companies achieved growth in turnover, while both subsidiary companies witnessed subdued performance; ii) Bubble-guard business (which commenced operations in the last quarter) achieved turnover of Rs 0.8cr. The company has begun developing B2B market and is building dealer-distribution network to scale up this business; iii) The company has commenced operations at two of its mattress manufacturing units at Barjora and Bhiwandi in Oct. With this, the business has marked its presence in all four regions of the country.
Outlook & Valuation
We estimate Nilkamal's consolidated revenue and PAT to grow by 9.3% & 14.1% CAGR over FY17-20E, led by demand revival and company's efforts towards brand building, distribution expansion and enhanced product offerings. While volume offtake was weak in Q2FY18, impacted by GST transition, we expect the same to improve in the coming quarters. While the operating margins could remain under pressure in FY18E due to higher input prices, we expect a meaningful revival from FY19E onwards, aided by operating leverage and stability in the crude oil prices. Market leadership, leverage free balance sheet and healthy cash flows would provide valuation comfort. Keeping our estimates unchanged, we maintain BUY on the stock with target price of Rs 2,097.
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