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MOSL: S H KELKAR AND CO. (Under Review)-Earnings volatility continues unabated

S H Kelkar and Co.: Earnings volatility continues unabated

(SHKL IN, Mkt Cap USD0.3b, CMP INR154, Under Review)

 

• Poor offtake impacts performance: Revenue declined 5.4% YoY (our estimate: +4%) to INR2,697m in 4QFY19, which management attributed to a slowdown in demand, mainly in the domestic market. A structural shift toward larger/mid-sized players was evident in the domestic fragrance industry, along with lower demand from smaller customer categories. In line with this trend, SHKL gained a higher wallet share in the mid and larger customer categories, while sales from smaller accounts were significantly impacted. EBIDTA declined 8% YoY to INR249m (our estimate: INR466m), with the margin contracting 25bp YoY (-635bp QoQ) to 9.2% (our estimate: 15.7%). PAT, too, declined 15% YoY to INR196m (our estimate: INR237m).
• FY19 performance: Net revenue increased 0.5% to INR10,481m, while EBITDA/adj. PAT declined 16%/14% to INR1,367m/INR885m. EBITDA margin shrank 250bp to 13%.
• Mahad facility ramp-up: The Mahad facility (manufactures Tonalid and other key raw materials), which was commissioned in Sept'18, is operating at optimal utilization levels in May'19. Operationalization of this facility is likely to help improve availability of key RM, improving cost efficiencies.