IGI Logo

Beat on revenue but severe margin pressure hits earnings again; maintain ADD  

Result Synopsis

JCHAC delivered better than expected revenue growth with another quarter of sharp contraction in margins. Gross margin contracted by 1064bps; however, on sequential basis gross margin has contracted by 378bps.We feelthatthis gross margin contraction is on account of company being super aggressive in the massmarket segmentin its bid to regain its lost market share. Our channel checks also suggest JCHAC’s aggression in the mass premium segment (multiple new SKU launches) which is 70% of the RAC industry volumes. Upcoming summer season needs to be watched out for where company is likely to go aggressive on volumes. We continue to maintain our ADD rating as stock has corrected significantly and underperformed peers. We will become more bullish on the stock once we see visible share gains and strong offtake in the upcoming season.  

JCHAC is ramping up its distribution network to cater to tier 2,3,4 cities which are touted to be new growth drivers forthe RAC industry. Recently company has changed its strategy and is now looking for higher volumes. Q1 needs to be monitored closely as company becomes aggressive in mass premium segment. This is expected to be the first fully normal AC season as last 2 seasons were impacted by Covid. Margin improvement from the current levels would be the key for us turning outwardly bullish on the stock. We expect FY22‐24E Revenue/EBITDA/PAT CAGR of 14%/55%/173% on favorable base. Given the favorable valuations, we continue with ADD rating with a PT of Rs2,036 valuing it at 45x FY24 EPS.

Result Highlights

* Quarter summary – JCHAC has once again delivered better than expected revenue growth of 20% on a base of 34% growth. Gross margin contracted 1000bps to 28.2% which can be attributable to pricing its products aggressively in a quest to regain market share.  

* Margins – Margins in the cooling segment have contracted 692bps yoy to 3.3%, while in design and development which consist of projects business, margins have contracted 132bps to 11.2%

* Distribution – Company has been expanding its distribution reach and now with increasing SKUs of mass premium RACs, it is aggressively looking to improve its reach in tier 3,4,5 cities and towns.

* Market Buzz – As per our channel checks, JCHAC is now aggressively focusing on mass premium segment and has been aggressively launching new SKUs at competitive pricing to recoup lost market share

To Read Complete Report & Disclaimer Click Here

Please refer disclaimer at https://yesinvest.in/privacy_policy_disclaimers
SEBI Registration number is INZ000185632

Above views are of the author and not of the website kindly read disclaimer