EUR 120.00 For Business Accounts Only

MOSL: S H KELKAR AND CO. (Buy)-Growth bounces back but revival to be gradual

S H KELKAR AND CO.: Growth bounces back but revival to be gradual

(SHKL IN, Mkt Cap USD0.3b, CMP INR127, TP INR177, 39% Upside, Buy)

 

• Revenue growth beats estimate: Revenue grew 15.6% YoY to INR2,744m (v/s est. INR2,611m), due to new product launches in the domestic FMCG market and healthy demand in international markets. EBIDTA stood at INR464m (v/s est. INR371m), up 37% YoY. EBITDA margins expanded 260bp YoY (+770bp QoQ) to 16.9% (v/s est. 14.2%), largely driven by lower other expenses (down 330bp YoY) on adoption of IND-AS 116, which led to lower rental costs. PAT stood at INR185m (v/s est. INR196m), up 2% YoY.
• Fragrances & flavors see healthy growth; RM pressure likely to ease: Fragrances business grew 15% YoY (+1% QoQ) to INR2,435m, driven by strong traction in both domestic (up 10% YoY) and international business (up 26% YoY). Flavors business grew 14% YoY (+6% QoQ) to INR280m on increased client engagements and uptick in international business. Further, normalizing RM supply environment is likely to ease cost pressure.
• Concall highlights: (a) Company has re-iterated strong double-digit growth for FY20 to be largely driven by both domestic and international business. (b) It has forayed into a new product category - Industrial use of fragrances for consumer durables and automobile accessories; (c) Creative Flavors & Fragrances (CFF) acquisition is expected to be completed by 3QFY20.
• Valuation view: We expect revenue/PAT CAGR of 22%/25% over FY19-21E partly driven by CFF consolidation, better RM pricing environment leading to gross margin improvement and new product launches. We value the stock at 18x FY21E consol. earnings of INR9.8/share. Maintain Buy with a revised TP of INR177/share.