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SMP’s margins below estimates; cut estimates and TP but retain Buy
* Consolidated revenues grew 11% yoy to Rs171.7bn (our est. of Rs168.9bn) on 19%/16%/5% growth in SMP/PKC/SMR. We expect 13% growth over FY19-21E on the back of Reydel acquisition, ramp-up of SMP’s new plants and increasing content/vehicle.
* Consolidated EBITDA margins contracted 120bps qoq to 7.2% (our est. of 9.1%) due to higher startup costs in SMP’s new plants. On gradual ramp-up in new plants and better scale in standalone operations, we expect margins to expand by 90bps over FY19-21E.
* We lower FY20/21 EPS estimates by 21%/12% to Rs6.1/Rs8 as a result of a 2-5% decline in revenue expectations and a 50-110bps reduction in margin assumptions. Despite the cut, we expect revenue/earnings CAGR at 13%/25% over FY19-21E.
* Average RoE/RoCE is expected at 18%/22% over FY20-21E with FCF generation of Rs25bn per year. Maintain Buy with a TP of Rs144 (from Rs182 earlier) based on 18x FY21E EPS (from 20x FY21E EPS earlier).
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