EUR 120.00 For Business Accounts Only

MOSL: SH KELKAR (Buy)-Growth picks up; Raw material pricing eases

SH KELKAR: Growth picks up; Raw material pricing eases

(SHKL IN, Mkt Cap USD0.2b, CMP INR120, TP INR162, 35% Upside, Buy)

 

• SH Kelkar's (SHKL) 3QFY20 operating performance was driven by improved demand in the Fragrances business (~90% of revenue). We expect growth momentum to be driven by demand pick-up in the underlying industry.
• Albeit the delay in CFF consolidation, we cut our earnings estimates for FY20 and increase estimates for FY21 on account of better demand outlook and easing RM pricing pressure. Reiterate Buy. 

Growth picks up in Fragrances; Flavors biz remains subdued

• 3QFY20 performance: Revenue grew 13% YoY (v/s est. +30% YoY) to INR2,900m. EBIDTA increased 8% YoY to INR431m (v/s est. INR492m) with margin contracting 75bp YoY to 14.9% (v/s est. 14.8%). Adj. PAT was up 20% YoY at INR256m (v/s est. INR273m). However, SHKL reported net loss of INR109m (v/s INR214m profit in 3QFY19) owing to one-time exceptional expense of INR365m on impairment of PPE and other cost related to the shutdown of a research facility in the Netherlands.
• Fragrances business picks up: Fragrances biz grew 14% YoY to INR2,595m, largely driven by growth in the domestic segment (+22% YoY), while the overseas segment remained muted at 1%. With growth in the underlying industry picking up, management has guided for double-digit growth across domestic and overseas markets, largely driven by continued traction with new and existing customers.
• Flavors business remains muted: Flavors biz grew 1.6% YoY to INR281m (domestic +5% YoY, overseas flat YoY). For 9MFY20, flavors biz (~10% of revenue) remained muted. Management has guided for performance improving, supported by both domestic and overseas segments.