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Operating results in line; Gross margin expansion to pick up in FY20
* 4QFY19 net sales grew 27.9% YoY to INR10.4b (our est. INR10.2b). EBITDA was up 73.7% YoY to INR287m (our est. INR288m). Adj. Loss for the quarter stood at INR103m (our est. loss of INR41m).
* Consolidated gross margin declined (-80bp YoY to 12.7% v/s our est. 12.9%). EBITDA margin expanded 70bp YoY to 2.8% (our est. 2.8%).
* During the year, the holding company reassessed the deferred tax asset on unutilized tax losses based on probability of future taxable income, and recognized net deferred tax asset of INR186.75m during the quarter. Thus, reported PAT stood at INR78m v/s loss of INR36m in base quarter.
* FY19 consol. performance: Sales/EBITDA grew 29%/86%. EBITDA margin expanded 80bp YoY to 2.6%.
* FY19 segmental performance: Centre of Plate (51% of sales) grew 22% YoY with volume growth of 27%. Deflationary environment in the pulses portfolio is expected to have impacted realization in the segment. Growth in the Fresh business (24% of sales) was 60% YoY. Processed foods (14% of sales) and Home & Personal Care (7% of sales) portfolio grew 14% and 37%, respectively.
* Valuation & view: Company delivered 29% revenue growth for FY19; we believe this growth will continue at current or even higher pace for the next few years (we are building revenue CAGR of ~32% over FY19-22), given the tremendous growth opportunity. Gross margin expansion is slower than expected, but company is delivering on operating levels. As the company is expected to be profitable at consolidated net level only in FY20, we believe near-term P/E multiples are likely to appear extremely expensive on a oneyear forward basis. Thus, we continue to value the company on an EV/sales basis, assigning a multiple of 1.5x to arrive at a target price of INR57.
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