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Subdued FY19 attributed to lower acreage
But outlook underpinned by likely cotton biz recovery/stable noncotton share
* Op. performance improves in fourth quarter: Revenue increased 7.5% YoY to INR447m (our estimate: INR421m) in 4QFY19. KSCL reported an operating loss of INR59m (our estimate: INR141m), as against a loss of INR133m in the year-ago period. Margin was at -13.3% (our estimate: -33.5%) versus -32.1% in 4QFY18. Consequently, the company reported a net loss of INR114m, lower than our estimate of INR171m and also below INR184m in 4QFY18. For FY19, revenue declined 1% YoY to INR8,094m. Margin shrank 100bp YoY to 26.1%, while adj. PAT was up 2.9% YoY to INR2,175m.
* Turnaround likely led by acreage recovery; non-cotton biz to grow faster: KSCL’s performance in FY19 was marred by subdued acreage, which led to lower volumes in cotton (-11% YoY) and maize (-4% YoY). However, with firm commodity prices likely translating into increased acreages, cotton volumes are expected to grow by 13% YoY to 7m packets in FY20 (company has maintained an inventory of 9m packets). KSCL has guided for volumes decline of 0.1-0.2m packets in Andhra Pradesh, the impact of which is likely to be more than offset by growth in Maharashtra, MP, Gujarat and Karnataka. The market share in north is also likely to improve owing to new launches in cotton. Separately, the company has guided for faster growth of 20%+ YoY in the non-cotton business in FY20.
* Valuation view: We note that the impact of sluggishness in the cotton business was restricted by revenue growth of a robust 51% YoY in paddy (38% volume growth) and 4% YoY in maize (4% volume de-growth) in FY19. Consequently, the share of the non-cotton business increased from 43% in FY18 to 50% in FY19. With the cotton biz likely to revive and growth in noncotton biz likely to remain strong, the company’s growth prospects appear sanguine. We maintain our estimates and value the company at 15x FY21E EPS. Our TP of INR630 implies an 18% upside. Maintain Buy.
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