EUR 120.00 For Business Accounts Only

MOSL: S H KELKAR AND CO. (Buy)-Weak top-line performance-expect recovery to be gradual

S H Kelkar and Co.: Weak top-line performance; expect recovery to be gradual

(SHKL IN, Mkt Cap USD0.3b, CMP INR161, TP INR207, 28% Upside, Buy)

 

• SHKL's revenues de-grew 9.4% YoY to INR2,565m v/s our est. of +13% YoY , mainly due to subdued domestic demand in Dec'18 for both flavors and fragrances segments. The management has attributed the decline in domestic sales to a transitory slowdown in homecare and essence-stick segments due to delays in GST refund (ensuing working capital constraints). SHKL anticipates business in these segments to recover, going forward. On a blended basis, EBIDTA stood at INR400m v/s our est. of INR513m, a de-growth of 31% YoY. EBITDA margins contracted 474bp YoY, but expanded 230bp QoQ to 15.6% v/s our est. of 16%. Margins contracted YoY due to pricing pressure in key raw materials, impacting profitability. PAT stood at INR214m v/s our est. of INR302m, a de-growth of 37% YoY, with margin contraction of 360bp to 8% YoY v/s our est. of 9.4%.
• 9MFY19 performance: Net revenue/EBITDA/PAT grew 5%/-17%/-13% to INR7,784m/INR1,118m/INR689m. EBITDA margins contracted 190bp YoY to 9%.
• Concall highlights: (a) Mahad facility fully commissioned and is currently operating at 15% utilization, which will be scaled up to 100% by Mar'19. (b) The company expects growth to normalize from 1QFY20 onwards as operating parameters stabilize along with improving macro factors. (c) SHKL expects 20% volume growth in FY20 on easing of cost pressures and Mahad facility ramp-up.