IGI Logo

Quarter impacted by temporary logistics issues; reiterate BUY given a strong growth platform for FY22

* Our view – While the current quarter performance was below our estimates mainly on account of the temporary logistics issues, we remain positive on the medium term growth outlook for the company. Continued penetration into developed markets, multiple ongoing value addition initiatives, stable demand environment for coffee and strong progress on the branded business are key positives which should more than offset the impact of MEIS shortfall and some delays in expansion. In any case, FY22 should not see any MEIS impact as overdue payments for FY21 should be received by the company. Company remains on track to deliver 12% revenue and 16% earnings CAGR over FY20‐23E with 20% average ROCEs. After a large period of underperformance given a tepid performance from India business, we see FY22 delivering very strong growth and therefore reiterate our BUY rating with a target price of Rs 352 based on 18x FY23E earnings.   

* Quarter summary – Revenue/EBITDA/PBT decline of 2%/18%/18% respectively impacted by a combination of logistics and container availability issues which deferred a few FDC shipments from India and non‐realization of MEIS subsidies worth 28cr which are earned for 9MFY21.

* Logistics issue details – Currently there is a 15‐20 day delay and a sharp price rise in procuring food grade containers which has led to a postponement of a few FDC shipments worth ~50cr which should be delivered in 4Q; no significant margin impact as most contracts were FOB basis and therefore paid for by clients; expect the situation to continue till end‐4Q at least.

* Increase in gross margins and other expenses – Gross margins increased sharply by 390bps to 55% led by higher sales in small packs and a better sales mix in Vietnam while other expenses increased on account of 12‐15cr expenses on packing material for small packs and higher freight expenses.

* Near term demand outlook – Some Russian customers who has postponed orders for months are now starting see to deliveries albeit the lag of 2‐3 months will continue.

* MEIS scheme impact – Scheme expired officially on 31 December and will be replaced with a new scheme from January which has still not been notified, so uncertainty with regards to extent of incentives remains, but 28crs of dues for 9MFY21 should be received in next few quarters in any case; currently company is pricing its products based on market situation, confident of passing on any MEIS shortfalls.

* Ongoing capex projects – Both the granulation/packing plant in Chittoor and the 3500MT expansion in Vietnam will be commissioned in 1QFY22.

* 4QFy21 outlook – Expect some degree of normalcy to return as company is trying to time its imports with its scheduled dispatches, should be able to do better sequentially.

* Volume guidance – While 10% volume growth remains achievable, MEIS shortfall can impact revenue and profitability to some extent; still targeting to reach 80% plus utilization levels on expanded capacity in FY22 with new clients for Vietnam expansion already tied up; realizations will also increase with more granulation and small pack sales.

* Current capacity utilization – Vietnam at 90% utilization Chittoor FDC plant at 80‐85% utilization and Duggirala plant at 60‐65% utilization currently.

* India branded business – Achieved branded sales of 70cr and overall domestic sales of 105cr in 9MFY21 with marginal loss of 1.2cr; FY21 guidance increased to 140cr from 125cr earlier given strong traction in ecom and GT channel.

* US business – Already doubled US volumes in last one year vs historical levels; also launched an innovative instant cold brew in US retail market with strong response.

* Capacity expansion plans – Started exploring next round of expansion in Vietnam, whereby capacity will be doubled at a much lower cost as infrastructure is already in place.

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