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Long term growth story intact
Nilkamal Ltd reported subdued numbers for Q4FY19 on standalone basis. Net Revenue de-grew by 6.9% YoY, impacted by poor performance from plastics business, which reported volume decline of 9%. EBITDA declined by 19.5% YoY, while EBITDA margins contracted 148bps YoY to 9.5%, impacted by higher input prices and employee cost. Further, PAT de-grew by 16.8%. Notably, while the standalone numbers were below par, the performance at the consolidated level for full year FY19 was relatively better with in-line profit growth. Going forward, we remain positive on Nilkamal’s growth prospects. Led by anticipated revival in demand and company's efforts towards brand building and enhanced product offerings, we expect improved volume offtake in the coming quarters. Further, after a muted show in FY19, we expect the margins to revive going ahead, led by operating leverage and cost efficiencies. We maintain Buy on the stock with revised target price of Rs 1,614.
Q4FY19 Result Update:
* Net Revenue (standalone) de-grew by 6.9% YoY to Rs 554.8cr, impacted by poor performance from plastics business, which reported volume and value de-growth of 9% & 8% respectively on the back of slowdown in consumption. Further, retail business sales declined by 3%. For FY19, revenue growth stood healthy at 11.2%., driven by 13% growth in plastics business (7% volume growth). The mattress division and bubble guard business also posted healthy growth.
* EBITDA declined by 19.5% YoY, while EBITDA margins contracted 148bps YoY to 9.5%, impacted by higher input prices and employee cost (up 93bps & 80bps YoY respectively as a % to net revenue). The company was unable to pass on input cost inflation completely, which impacted the margins. However, relatively lower other expenses (down 25bps YoY) restricted further margin decline. Further, PAT declined by 16.9% with 60bps YoY contraction in PAT margins at 5.1%, impacted by higher depreciation & interest cost and higher effective tax rate, partly offset by a sharp jump in other income.
* Other key highlights:
i) Both the JV companies (German & US) delivered healthy revenue growth in FY19;
ii) The Company has put up production facilities for the mattress business across the country and have introduced a range of new products in the mid and premium segments;
iii) Within the retail segment, the initial franchise stores opened in Indore and Rajkot stood profitable. Further, the business has also exhibited a robust digital presence through its own website and other prominent marketplace and has achieved sales of ~Rs 25cr during FY19 (Rs 11cr in FY18).
Outlook & Valuation:
Nilkamal’s FY19 consolidated net revenue growth of 11.2% was below our estimates, while EBITDA and PAT growth were largely in line, aided by better than expected profits from its subsidiaries & JVs. We estimate Nilkamal's consolidated Revenue and PAT to grow by 9.5% & 16.9% CAGR respectively over FY19-21E, led by revival in consumption and company's efforts towards brand building, distribution expansion and enhanced product offerings. We expect improved volume offtake in the coming quarters, albeit at a slower pace. Further, we expect the margins to revive going ahead, led by better product mix, operating leverage and cost efficiencies. We have downgraded our revenue estimates marginally, but have maintained our EPS projections for FY21E. Further, we are assigning lower PE multiple to the stock to factor in the near term growth challenges. Based on this, we arrive at revised target price of Rs 1,614. Maintain Buy.
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