Strong quarter; bright future
Nilkamal Ltd reported healthy set of numbers for Q1FY19 with Net Revenue & PAT growth of 17.3% & 37.1% YoY respectively. The volume growth in plastics business stood healthy at 13%, clearly indicating signs of revival post GST transition. EBITDA grew by 26.6% YoY, while EBITDA margins improved by 71bps YoY to 9.6%, aided by cost efficiency. We remain positive on Nilkamal’s medium to long term growth prospects, given the robust outlook of plastics industry, company's efforts towards brand building and enhanced product offerings. Leadership position, volume growth revival, debt free balance sheet and healthy cash flows should provide valuation comfort. We maintain BUY on the stock with target price of Rs 2,231.
Q1FY19 Result Update:
* Net Revenue (standalone) grew by 17.3% YoY to Rs 571.8cr, led by healthy volume & value growth of 13% & 21% respectively in plastics business. The growth reported was the highest in past 24 quarters, which is encouraging. The performance of retail division ‘@home’ was muted (de-growth of 12% YoY), impacted by higher sales during pre-GST period in Q1FY18. However, growth in mattress business stood healthy at 40.5%.
* EBITDA grew by 26.6% YoY to Rs 54.9cr, while EBITDA margins improved by 71bps YoY to 9.6%, aided by cost efficiency. The impact of higher input cost, which impacted the gross margins (down 122bps YoY), was offset by relatively lower growth in the employee cost & other expenses (down 39 & 153 bps YoY respectively as a % to net revenue). Despite higher interest cost and lower other income, PAT surged 37.1% YoY to Rs 30.7cr, aided by a sharp fall in the effective tax rate (down 685bps YoY).
* Other key highlights: i) Both the JV companies viz. Nilkamal Bito Storage Systems and Cambro Nilkamal displayed a strong growth in topline (43% YoY combined) and increase in profits. Further, while one of its subsidiaries in Srilanka witnessed a revenue decline, the other subsidiary at Ajman posted growth; ii) Within the retail segment, all the stores, except one, have achieved profits at store level. Further, the company has opened a new retail store in Indore and is in the process of opening more stores over the next 2-3 years.
Outlook & Valuation:
We estimate Nilkamal's consolidated Revenue and PAT to grow by 11% & 19% CAGR over FY18-20E, led by demand revival and company's efforts towards brand building, distribution expansion and enhanced product offerings. The strong volume growth delivered by the company over the last two quarters clearly indicates signs of revival post GST transition. We expect volume offtake to remain healthy in the coming quarters, likely to be driven across all segments of plastics and retail division. Operating leverage should result in gradual improvement in margins. Leadership position (in material handling and moulded plastic furniture), volume growth revival, debt free balance sheet and healthy cash flows should provide valuation comfort. While we have upgraded our revenue estimates for FY19E & FY20E on the back of better than expected volume growth, we have maintained our profit growth projections, since margins are estimated to be lower in the coming quarters on the back of higher input cost. We maintain BUY on the stock with target price of Rs 2,231.
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