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Market share loss drags revenue; maintain Neutral

Result Synopsis

JCHAC has once again registered poor set of performance with revenue coming significantly below ours and consensus estimates. Gross margin although has improved on sequential basis, it remains significantly below it normalized margin. We feel that this gross margin contraction is on account of intense competition in RAC space where other companies have become super aggressive. Our channel checks suggest JCHAC’s aggression in the mass premium segment (multiple new SKU launches) which is 70% of the RAC industry volumes is not yielding results as it is losing market share to players like Lloyd, LG, and Blue star. JCHAC has been losing market share as well as margins in this super competitive environment. We feel it would be difficult to gain market share and improve upon the margins at the same time in this hyper competitive RAC market. Considering lower margin profile, we continue to remain neutral on the stock as stock price has already corrected. We willturn positive once we see visible signs of some market share gains

JCHAC has increased its distribution presence to tier 2,3,4 cities, however they have lost the favour of MBO’s. Recently company has changed its strategy and is now looking for higher volumes. JCHAC has been failing to protect its margin and simultaneously grow its market share. Market share gains and improvement in profitability will need to be watched out for before we become constructive on the stock. We have revised our estimated downwards and now expect FY22?25E revenue/EBITDA/PAT CAGR of 17%/32%/91% on the lower base. Given the headwinds company is facing, we continue to remain Neutral the stock with a revised PT of Rs1,149 now valuing it at 35x rolling forward valuation multiple.

Result Highlights

Quarter summary – JCHAC has once again registered revenue significantly below ours and street estimates with revenue declining 10% yoy. Gross margin although have expanded 325bps on sequential basis, it is still significantly below its normalized levels.

* Margins – Company continues to register loss in its cooling segment, with loss of Rs204mn in Q3, while in design and development which consist of projects business, has seen margins of 11% contraction of 921bps.  

* 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 losing its focus and market share, while its concentration on mass premium segment is not yielding any result and company is now losing favour with large MBO’s.

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