Shankara Buliding Products' Q1FY20 results (Underperformer) - Weak performance, recovery to be more gradual...
Q1FY20 result highlights
- Shankara Building Products Ltd (SBPL) net sales decreased by 18.6% yoy to Rs6.4bn(est: Rs6.5bn), EBITDA decreased by 36% yoy to Rs312m, PAT decreased by 58% yoy to Rs83m.
- Adj for IND AS116 impact, comparable EBITDA decreased by 45% to Rs271m(est:306m) with margin contraction of 200bps to 4.2%.
- Retail sales decreased by 11% yoy (LTL sales was down 13%yoy). Channel & Enterprise (C&E) revenues decreased by 27% yoy.
- Retail EBITDA decreased by 30% yoy with a margin contraction of 220bps yoy to 8.1%. Channel & Enterprise EBITDA decreased by 46% yoy with a margin decline of 120bps yoy to 3.5%.
- Gross margins declined by 260bps yoy to 9.5% on account of lower processing margins. Staff cost decreased by 24% yoy while other expenses were down 43% yoy. Resultant EBITDA margin declined by 130bps yoy to 4.9%.
- Interest cost decreased by 18% yoy on account of debt reduction and depreciation was up 90% yoy for the quarter. PBT was down 61% yoy. ETR was down 650bps yoy.
Key positive: Reduction in debt, tight control over overheads
Key negatives: Continued weak performance in retail segment
Impact on financials: Factoring weak performance we have cut FY20/21E, comparable EBITDA (ex-IND AS) by 18%/17%.
Valuations & view
SBPL’s 1QFY20 performance was below estimates impacted by weakness across segments. Management indicated that market scenario remains challenging in the near term and the focus will be on consolidating operations & strengthening balance sheet in FY20. As a result, pace of store addition is likely to be muted and company does not expect revenue growth trajectory to revert to double digit seen in FY18/1HFY19. Further margin expansion is unlikely in FY20 and focus on cost efficiencies should aid in sustaining EBITDA at FY19 levels. Reduction in debt & improvement in working capital is positive; however, the business is still evolving and we would await better execution in the retail business. Maintain underperformer rating on the stock.
Shankara Building Products Ltd. Shankara Building Products Ltd is an Indian-based company, which is engaged in the business of organized retailer of home and building products. The Company's business units include retail, processing and enterprise. Retail unit's products include cement, scaffolding, msand, steel pipes, roofing solution, plumbing, electrical, paints, tiles, exterior cladding and solar products. Processing unit's products include steel tubes, galvanised strips, cold rolled strips, colour coated roofing sheets, bright rods and scaffolding. Enterprise unit's products include steel tubes, cement and other building products. Some of these Principals include JSW, Sintex, Uttam Group and APL Apollo.
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