Bata India Ltd (BIL) is the largest footwear retailer in India, offering footwear, accessories and bags across brands like Bata, Hush Puppies, Naturalizer, Power, Marie Claire, Weinbrenner, North Star, Scholl, Bata Comfit and Bubble gummers. BIL has over 1,290 stores as on 31st March 2018. It also retails on bata.in and in thousands of multi-brand footwear dealer stores across India. It has established a leadership position in the industry and is one of the most trusted names in branded footwear.
BIL currently owns and operates a major chunk of its outlets and also has ~150 franchise outlets in India. To accelerate growth by tapping opportunities in small cities, BIL is planning to add ~300-350 stores via franchise route in next three years. As the next step towards this target, BIL has identified 435 small cities in India. BIL’s target is to achieve $1billion in five years. The management expects the franchise route will support to accelerate growth. Additionally, BIL’s plan to increase its advertisement spending to ~2.5% of sales in FY19 will drive increase in footfalls. BIL has been investing in improving customer experience and has launched ‘Red-concept’ stores in Q4FY18 quarter. This coupled with renewed focus on women and kids’ categories will give additional push to top-line growth. BIL wants to increase the share of women’s shoe from current 40% to ~50% in the next three years. We expect revenue to grow at 10.6% CAGR over FY18-20E driven by increasing premium mix, higher advertisement spending and store additions.
For Q4FY18, Bata reported a revenue growth of 6.9% on a YoY basis. EBITDA growth was strong at 45% YoY supported by 340bps improvement in EBITDA margins. Gross margin has been improving since Q1FY18 from 52.3% to 55.9% aided by premiumisation, lower rent and benefit from input tax credits. Gross margins improved by 180bps YoY in Q4FY18. PAT grew by 45% YoY mainly aided by improvement in margins. Bata has been on a path of premiumisation of its products by adding technologies like memory cushion and insolia, and with several new launches in men and women categories such as Hush Puppies, Naturalizer, European collection etc. This will improve realisation going forward.
Additionally, BIL’s strategy on store additions through franchise route will control its fixed costs. Rent expense has come down by 5%YoY in Q4FY18. We expect 100bps improvement in EBITDA margin over FY18-20E supported by better operating efficiency and premiumisation of products which will support 15.7% CAGR in PAT.
We expect revenue growth to be supported by revival in rural demand aided by good monsoon, government focus on rural, store additions, new launches and higher advertisement spending. Improving efficiencies and premiumisation will continue to support margins. The healthy outlook on earning is expected to support valuations. We value BIL at 38x on FY20E EPS and revise upwards our target price to Rs.900 (Earlier Rs772) and recommend Buy.
Analyst: Vincent K Andrews, Geojit Financial Services Ltd.,INZ000104737
General Disclosure and Disclaimers: https://goo.gl/BCCDf6
Granules (Inc) is a leading generic player in the Indian pharmaceutical industry with two thirds of its revenue generated from North America and Europe and the rest coming from emerging markets like India. The company is actively engaged in increasing production capacity and utilisation rates. Their prime molecules are Paracetamol, Ibuprofen, Metformin and Guaifenesin which together comprise more than 80% of the total revenue. They are effectively into all segments of production including API, PFI and FD. Vertical integration puts them in a unique position, to utilise the benefits of lower cost and effectively fight off pricing pressure, and increased competition from their major market in US.
In FY18, Granules registered ~19% growth in revenue which is very positive. Production from recently added capacities in Bonthapally and Gagillapur plants coupled with higher Ibuprofen sales paved way for this growth. We also witnessed an increase in top line growth in FY18 – across all product verticals, with API registering an 18% increase; PFI 22% and FD 24%. AMEA region registered the highest year on year growth geography wise. On the filing front, they have filed 10 ANDA’s in the past year with six coming from Virginia, USA and 4 from India. In addition, on a positive note, they have also been able to complete 4 USFDA audits in FY18 which is indicative of their adherence to best industry practises and we believe all these will add momentum to their growth.
However, Q4 was not a good one for the company primarily due to some unexpected scenarios. One of the prime reason is the continuous rise in crude oil prices. The company has a mechanism to effectively transfer this price to their customers, but its effect will come only once the crude prices stabilise. We believe the crude production will increase going forward whereby ceiling the current price growth. Besides, consolidated other expenses were a Rs36cr write off specifically related to R&D expenses which had a dragging effect on the numbers. In a nutshell, we can say that EBITDA margins shrank on a YoY basis primarily due to increase in raw material cost, one time inventory write offs API and certain supply issues from China. But we see these as temporary problems as Granules is a fundamentally strong company with one of the lowest cost of production in the industry.
We expect consolidated revenue to grow at 15%CAGR over CY19-20E led by increase in product releases. On the pricing front, considering their increasing production capacity, lower valuations, expectation of stabilising oil prices, we believe in the future prospects of the company and expect earnings to remain healthy in the long term. We believe that the recent dip will not sustain for longer periods, and retain the Buy rating with a revised target price of Rs 97 at 14x FY20E EPS.
Analyst: Dilish K Daniel, Geojit Financial Services Ltd.,INZ000104737
General Disclosure and Disclaimers: https://goo.gl/TcSk7r
NBCC Ltd (NBCC) is a Navaratna Enterprise under Ministry of Urban Development. Its business verticals include: Project management consultancy (PMC), Engineering Procurement & Construction (EPC) and real estate business. PMC services entail implementation of the projects from Concept to Commissioning, ensuring competitiveness on the basic guidelines of Cost, Quality & Time. Company’s PMC business segment includes management and consultancy services for a range of Civil Construction Projects including Residential and Commercial Complexes, Re-development of Colonies, Hospitals, Educational Institutions, Infrastructure Works for Security Personnel, Border Fencing as well as Infrastructure Projects such as Roads, Water Supply Systems, Storm Water Drainage Systems, Water Storage Solutions and Solid Waste Management Schemes at different towns all over India.
In Q4FY18 revenue declined by 7% YoY to Rs2,184cr mainly on account of delay in execution of PMC projects and no revenue from real estate business. The PMC projects constitute ~92%of the total revenue which de-grew by 4%, while EPC business grew by 7%. Delay in tendering of redevelopment projects continued to impact the execution. However, management pointed out that the company has already awarded Rs1,000cr worth work each in Netaji Nagar and Sarojini Nagar and has guided 30% to 35% revenue growth for FY19E-20E. The tender for AIIMS is in process and is expected to be awarded by July. However, we reduce FY19/20E revenue by 16%/18% respectively on the back of delay in execution. Execution remains the key catalyst to monitor for re-rating while some of the redevelopment projects have started we expect which will start contributing revenue book in the coming quarters.
NBCC remains on the sweet spot given strong order book of Rs800bn (including re-development) which is 14x FY18 revenue. The management is expected to add Rs25,000cr of more inflows in FY19. Given strong opportunity in railway station re-development, housing for all, smart cities etc. will further strengthen the order book.
The EBITDA margins declined by 63bps YoY to 8.3% due to slower execution of PMC projects impacted the earnings growth during this quarter. EBIT margin of PMC business declined by 302bps YoY to 6.4%. We expect PMC margin to improve as company will charge 2% of projects cost upfront for designing & soil test. We expect earnings to grow at 35% CAGR over FY18-20E owing to robust order book & pick-up in execution.
We value NBCC’s core business at a P/E of 26x on FY20E and book value of land parcel at Rs10/share to arrive at SOTP target price of Rs97 with a change in rating to ‘Accumulate’ from ‘BUY’.
Analyst: Antu Eapen Thomas, Geojit Financial Services Ltd.,INZ000104737
General Disclosure and Disclaimers: https://goo.gl/mLZXGX
Bharat Forge Limited (BFL) is a Pune-based Indian multinational company involved in automotives, power, oil and gas, construction & mining, locomotive, marine and aerospace industries. The company has made a strong foray into the defence and aerospace sectors and is moving from being a components manufacturer to a complete product maker. Currently Bharat Forge has manufacturing operations in four locations: Mundhwa, Satara, Baramati, Chakan. BFL’s “bread and butter” products include front axle beams, steering knuckles, connecting rods and crankshafts. As part of its risk mitigation efforts, BFL diversified into a variety of industrial sectors including oil & gas, infrastructure, and marine. It is aiming to double its revenues by 2020. It is part of the Kalyani Group, which is a USD $2.5 billion conglomerate with 10,000 global work force. Amit Kalyani, Baba Kalyani’s son, is the Executive Director of the company.
Q4FY18 revenue grew by robust 31%YoY, largely due to better traction from the US class 8 heavy truck segments and non-auto export business (Oil & gas). Export revenue grew by 36.5%YoY and domestic sales grew by 23%YoY. The overall volume rose by 24%YoY to 68,701 tonnes during the quarter. BFL’s average realisation per tonne rose by 8%YoY, due to superior product mix and geographical mix. Reported PAT came in at Rs100cr vs. our expectation of Rs232cr. However, post adjustment of one-time loss of Rs.133cr, adjusted PAT was at Rs.234cr.
We expect the meaning full recovery in the energy sector and traction from the US HCV sales to continue. We believe domestic CV business to remain robust on the back of higher road infrastructure spending and stricter implementation of overloading ban. Long term growth outlook remains robust on the backdrop of improved revenue visibility from the Indian defence space. Managements expects the incremental revenue from new business/products to grow from current 5% of sales to 15% in next 2-3 years. We expect 16% revenue CAGR over FY18-20E.
BFL is setting up Centre for light weighting technology (LWT), a fully automated manufacturing facility in Andhra Pradesh focused on Aluminium and Magnesium and components products. The facility will design and manufacture for Automotive and industrial application and commence commercial production by end of FY 2019. The facility will enable BFL to address the need for light weighting solutions driven by the shift from BS-IV to BSVI in India and also the evolving Electric Vehicle segment. BFL is the global leader in the Aluminium forging will be the preferred choice of OEM for any technological change.
We marginally upgrade our revenue estimate for FY19 & FY20 to factor in 16% volume growth and 4% increase in raw material price. We expect the earning to grow by 34% CAGR over FY18-20E. We remain upbeat on the stock considering strong traction in all the segments. At CMP we value BFL at 26x on FY20E EPS with a revised target price of Rs.753 and upgrade our rating from Hold to Buy rating.
Analyst: Saji John, Geojit Financial Services Ltd.,INZ000104737
General Disclosure and Disclaimers: https://goo.gl/U39mSA
