Shankara Buliding Products' Q3FY20 results (Underperformer) - Healthy performance, sustainability is the key...
Q3FY20 result highlights
- Adjusted for sale of processing business in base quarter, net sales increased by 20.6% yoy to Rs7.0bn (est: Rs6.2bn), EBITDA increased by 61% yoy to Rs321m, PAT was up 4.5x yoy to Rs130m. Adj for IND AS benefit, comparable EBITDA increased by 43% to Rs285m with margin expansion of 70bps to 4.1%.
- Volume growth stood at 44% yoy. Comparable Retail sales increased by 11% yoy. Channel & Enterprise (C&E) rev. increased by 34% yoy.
- Retail EBITDA increased by 26% yoy with a margin expansion of 100bps yoy (20bps qoq) to 8.2%. Channel & Enterprise EBITDA increased by 4.2x yoy with a margin expansion of 190bps yoy (40bps qoq) to 2.5%.
- Gross margins declined by 40bps yoy to 8.8%. Staff cost increased by 1% yoy while other expenses were down 21% yoy. Resultant EBITDA margin were up 120bps yoy (+40bps qoq) to 4.6%.
- Interest cost decreased by 19% yoy on account of debt reduction. Net debt+acceptances down 6% qoq to Rs2.73bn(vs Rs2.91bn in 2QFY20).
Key positive: Healthy growth in Retail business.
Impact on financials: We increase our EBITDA (ex-IND AS) for FY20/21E by 5-7%, factoring 3Q beat on sales & better margins.
Valuations & view
After sharp deterioration in sales and profitability over the last 6 quarters, SBPL has delivered healthy growth in retail business revenue in 3QFY20. Further, sale of processing business, closure of stores and tight control over costs has helped in cushioning EBITDA margins as well as reducing working capital/overall debt. We are factoring double-digit revenue growth in 2HFY20/FY21E for the retail segment and improvement in C&E revenues; however, material margin expansion is unlikely as company will continue to reinvest behind driving volume growth and maintain its value proposition. Given the initial sign of improvement, positive management commentary we have increased are multiple for retail business to arrive at revised target price of Rs377. We would await for more consistency in revenue growth in retail business, pick up in non-steel product contribution and plans on restarting store expansion in order to change our stance on the stock. 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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