Published on 26/06/2019 11:26:40 AM | Source: Motilal Oswal Services Ltd

Update On S H Kelkar and Co Ltd By Motilal Oswal


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Earnings volatility continues unabated

* Poor offtake impacts performance: Revenue declined 5.4% YoY (our estimate: +4%) to INR2,697m in 4QFY19, which management attributed to a slowdown in demand, mainly in the domestic market. A structural shift toward larger/mid-sized players was evident in the domestic fragrance industry, along with lower demand from smaller customer categories. In line with this trend, SHKL gained a higher wallet share in the mid and larger customer categories, while sales from smaller accounts were significantly impacted. EBIDTA declined 8% YoY to INR249m (our estimate: INR466m), with the margin contracting 25bp YoY (-635bp QoQ) to 9.2% (our estimate: 15.7%). PAT, too, declined 15% YoY to INR196m (our estimate: INR237m).

FY19 performance: Net revenue increased 0.5% to INR10,481m, while EBITDA/adj. PAT declined 16%/14% to INR1,367m/INR885m. EBITDA margin shrank 250bp to 13%.

* Mahad facility ramp-up: The Mahad facility (manufactures Tonalid and other key raw materials), which was commissioned in Sept’18, is operating at optimal utilization levels in May’19. Operationalization of this facility is likely to help improve availability of key RM, improving cost efficiencies.

* Valuation view: In FY19, SHKL’s cash flow from operations declined by INR600m to INR407m, while adj. PAT was down 14% to INR885m, dragging the RoCE to 11.6% (v/s 16.9% in FY18). We note that the company’s earnings have remained volatile over the past many quarters. Against this backdrop, we await further clarifications from management on the company’s performance in its 4QFY19 earnings call. Until then, we put our rating ‘Under Review’.


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