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Focusing on sustained profitable growth…

Butterfly Gandhimathi (BGAL) reported strong revenue and improved profitability aided by favourable base. Revenues in Q4FY21 grew 86% YoY to | 207 crore with PAT of | 8.9 crore vs. net loss of | 7.7 crore in Q4FY20. The healthy growth was due to enhanced customer interest in kitchen appliances due to accentuated preference for home cooked food. Revenue growth was visible across all channels except gas dealers. Though gross margins fell 340 bps YoY to 41% owing to higher input cost and change in product/channel mix, EBITDA margin was at 6.6% and EBITDA at | 13.6 crore (Q4FY20: EBITDA loss of | 4.5 crore). On the back of strong operational performance, PAT was at | 8.9 crore vs. net loss of | 7.7 crore in Q4FY20.

Product/distribution strategies providing growth impetus

Over the last three years, BGAL has enhanced its focus on modern trade/online distribution channels to capture higher revenue growth. The company has strengthened its product portfolio by increasing the stock keeping units (SKUs) and currently has a bouquet of 731 SKUs across various product categories. Simultaneously, the company has focused on strengthening its sales team in newer regions and also maintained marketing spend of ~ 10% of total revenues. Revenue from non-south region has increased from 19% in FY19 to 24% in FY21 while the company is aiming to increase the same to ~ 35% over the next three years.

B/s improvement led by efficient working capital management

The company’s strategy of managing working capital is bearing fruit. The debtor days have reduced from 102 days in H1FY20 to 37 days in FY21 owing to adoption of real time inventory tracking at dealer level, successful implementation of bill discounting facility (utilised ~| 28 crore) and reduction in revenue share of gas dealer channels (down from 30% in FY18 to 6% in FY21). BGAL is expected to maintain working capital days at FY21 levels (at 35-40 days), going ahead.

Valuation & Outlook

The company reported strong revenue growth of 28% in FY21 (in spite of 50% YoY revenue decline in Q1FY21) and has also been able to improve the operating margins (up 320 bps YoY to 9.2%). Reduction in working capital employed and healthy operational performance have translated to RoE expanding significantly to 16% in FY21. The company is planning a capex of | 30 crore to enhance the plant capacity. The new capex would enable BGAL to have a peak revenue potential of ~ | 1400 crore over the next few years. Factoring in the strong performance in FY21, we model revenue CAGR of 17% in FY20-23E. We expect improvement in margin profile (operating leverage) and expect EBITDA margins to increase to 11% by FY23E. BGAL has shown consistent improvement on financial performance parameters. We maintain our BUY rating with a revised target price of | 1000 (~1.6x FY23E EV/sales, earlier TP: | 750).

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