Buy Tarsons Products Ltd For Target Rs.910 - Anand Rathi Share and Stock Brokers
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* Tarsons Products reported revenue of Rs. 712.5 Million in Q2FY23 vs Rs.760.4 Mn in Q2FY22 (high base due to covid revenues during the quarter). On a QoQ basis, revenues rose by 4%. On a like-for-like (LFL) basis, its conventional business (non-covid) recorded resilient YoY growth and management expects this trend to continue, going forward.
* Owing to Tarson’s constant endeavor to increase its global presence its export business grew 11% during the quarter on a YoY basis and the share of export revenue in overall revenue increased to 38% from 32% in Q2FY22. The contribution of original device manufacturer (ODM) revenue to Tarsons’ export business stood at 59% in Q2FY22.Tarsons incurred higher marketing and travel expenses to gain exposure to new geographies and fuel future growth which continued to weigh on margins.
* Tarsons EBITDA margin contracted by ~470bps YoY to 45.9% which was lower than our estimate of 46.3%, mainly due to an increase in employee cost for the upcoming facility and marketing and branding expenses in export markets to fuel growth. Its gross margins dipped by 230 bps YoY to 76.8% in Q2FY23 as against 79.1% in Q2FY22 due to a change in product mix and inflationary commodity environment on account of geo-political tensions and supply-chain disruptions. ? Overall, Tarsons reported a soft quarter mainly due to a higher base last year owing to high COVID-related revenues however, its conventional business (revenue excluding COVID-related business) reported healthy growth of 11%, which is expected to continue in the upcoming quarters.
* Despite a relatively soft quarter Tarsons management maintains its Rs.5,000 Mn revenue target with 50% margin by FY25 fuelled by domestic as well as export businesses and in-line capacity expansions. We believe Tarsons strong domestic presence, expanding exports business and supportive macro factors will help it to continue reporting consistently robust financials and industry-leading operating margins. We maintain our BUY rating on the stock with a revised target price of ?910 per share.
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