Sell Centum Electronics Ltd For Target Rs. 845 by Choice Broking Ltd
Weak Q3FY25 results, Loss making subsidiaries raises concerns.
* Consolidated Revenue for Q3FY25 came at INR 2,755 Mn (vs CEBPL Est. of INR 3,505 Mn), down 4.5% YoY and up 9.6% QoQ.
* Consolidated EBIDTA for Q3FY25 came at INR 193 Mn (vs CEBPL Est. INR 438 Mn), down 33.0% YoY and down 5.0% QoQ. The EBITDA Margin came at 6.9%, contracted 300 bps YoY and contracted 105 bps QoQ (vs CEBPL Est. of 12.5%).
* Consolidated PAT for Q3FY25 came INR -193 Mn (vs CEBPL Est. of INR 149 Mn), down 366.2% YoY and. PAT Margin decreased by 952 bps YoY, reaching -7.0% (vs CEBPL Est. of 4.2%).
* Standalone Revenue for Q3FY25 came at INR 1,807 Mn, up 2.5% YoY and up 8.4% QoQ.
* Standalone EBIDTA for Q3FY25 came at INR 224 Mn, down 4.9% YoY and up 3.4% QoQ. The EBITDA margin came at 11.8%, contracted 92 bps YoY and contracted 51 bps QoQ.
* Standalone PAT for Q3FY25 came INR 108 Mn, down 15.7% YoY and. PAT Margin decreased by 109 bps YoY, reaching 5.0%
CTE's recent performance has raised significant concerns. Over the past few quarters, the company has struggled with its loss-making overseas subsidiary, leading to an inability to maintain consolidated profitability. Losses from the Canadian subsidiary and delays in the French project have further impacted profitability. We remain pessimistic about the company’s near-term prospects, as management has not provided clear direction, and as per the management guidance resolution of issues with the Canadian subsidiary is expected by end of this year.
On a standalone basis, the company has performed reasonably well. The management has guided EBITDA of INR 1,000 Mn at the standalone level, but our projections suggest that this target may only be achievable in FY27E. Additionally, considering the current situation, we have reduced the EV/EBITDA Multiples. Based on these factors, we have revised our projections accordingly. While we are closely monitoring the situation, the growth trajectory in the short to medium term remains uncertain.
View & Valuation: Despite a moderate order book of INR 16.7 billion (~1.5x TTM sales), we remain cautious about CTE’s near-term performance due to ongoing challenges with its loss-making subsidiary. We project standalone EBITDA of INR 1,000 Mn in FY27E. Given these factors, we downgrade our rating from "HOLD" to "SELL" and revise our TP to INR 845, implying a valuation of 12.0x EV/EBITDA of FY27E. We will continue to monitor the company’s performance, and any improvement in resolving the Canadian subsidiary's issues may lead to a reassessment of our target price and valuation multiples.
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