FCL is India’s largest manufacturer of electrical (80% of revenue) and telecommunication cables (16%). FCL’s strategy of backward integration of PVC Resin, optical fibre & fibre rods and Copper Rod helps the company in complete control over the quality of our products, besides ensuring reliability in raw material supply and enjoys low cost advantage. For leveraging its brand equity, FCL’s has extended brand offerings that are complementary to the electrical cables market like CFL’s, LED lamps, electrical switches and fans.
FCL’s Q1FY19 revenue grew by 17% YoY, led by pass through of higher copper prices coupled with strong growth in Electric cables revenue which grew by 12% YoY. Overall revenue growth from Electrical Cables was up 12% YoY. Electrical Wires volume grew by 10% YoY and Power Cables grew by ~20% YoY. Though revenue growth in communication cables was flat YoY, volume growth was healthy led by a 20% growth in Optical Fiber Cables. Management is confident that the ongoing government programs to improve broad band connectivity and related technologies will continue to drive growth in this segment. Going forward, with stabilisation of GST impact, reduction in tax rates, higher growth from optic fibre and gradual pick-up construction sector will drive revenue growth. We factor a revenue growth of 15% CAGR over FY18-FY20E.
Q1FY19 FCL’s gross margins declined by 123bps YoY to 26.9% largely due to higher raw material costs. While EBITDA margin improved by 10bps YoY to 16.4% led by lower employee and administrative expenses. But PAT declined by 11% YoY to Rs90cr due to higher tax expenses, as Roorkee facilities tax exemption period has expired. Consequently, tax provision for the current quarter was higher at 35.4% versus 21.3% in Q1FY18. Going ahead with stabilisation of GST volumes are expected pick-up, while pass through of higher copper prices, EBITDA margins are likely to improve. We raise our EBITDA margin estimates by 30bps & 40bps to 15.1% & 15.4% and factor EBITDA to grow by 16.4% CAGR over FY18E-20E. However, we lower our EPS estimates by 8.3% & 8.5% for FY19E & FY20E to factor in higher tax incidence going forward.
Despite downgrade in earnings we continue to remain positive on FCL in the long term given its strong brand recall & expanding product portfolio. However, considering the earnings downgrade, we value FCL‟s core business at P/E of 19x (21x earlier) on FY20E and FCL‟s investments in Finolex Industries at Rs75 to arrive at SOTP price target of Rs644 and upgrade to “Buy” from Accumulate.
Analyst: Anil R
Geojit Financial Services Ltd., INH200000345
For Disclosures and Disclaimers: Finolex Cables: https://goo.gl/FxYrrt
Jyothy Laboratories Ltd (JLL) is an Indian FMCG player with products across Fabric care, Dishwashing, Mosquito repellents & Personal Care. The company has strong focus on brand creation and the major brands include Ujala, Maxo, Exo, Henko, Pril, Margo, Neem, Check, Mr.White and Maya. JLL has plans to foray into Ayurveda products also.
JLL reported standalone revenue growth of 18%%YoY driven by strong volume growth of 18.5%YoY. Revenue growth was visible across all major categories on YoY basis. Fabric care (13%), Dish washing (28%), Household insecticides (28%) and Personal Care (28%) which altogether contribute 98% of total revenue. JLL’s total power brands including Ujala and Exo have shown growth of 21%YoY. Management is very positive on the strong demand outlook given good monsoon, higher MSP and other rural initiatives of the government and has guided for 15%/12% growth in revenue for FY19E/FY20E. With JLL’s strong focus on innovation & new launches, strengthening position in existing brands and gaining traction into newer geographies we expect strong volumes to continue and factor 12% CAGR in revenue over FY18-20E.
EBITDA margins expanded by 240bps to 15.1% despite 240bps decline in gross margins to 47.4%. The higher crude oil price has caused 240bps increase in raw material cost (as % of sale) which was partially offset by cost efficiency measures as other expenses has reduced by 320bps (% of sales). Management has guided for 16%-17% EBITDA margins for FY19E supported by volume growth, improvement in mix and price increase. We factor 16.1%/16.9% EBITDA margin for FY19E/FY20E by considering strong rural demand outlook. GST is expected to structurally change the supply chain and bring efficiencies going forward.
JLL focuses on strong brand building and expansion across the country. JLL has dynamic push for its power brands through advertisements and promotions which observed notable results. JLL introduced Rs10 pack of Henko and volumes witnessed a splendid 18%YoY in the quarter. JLL has a special interest on natural products in personal care segment- Margo saw 29.5% growth in Q1FY19 and has been growing at 23% CAGR over the last six years. Further, entering into the toilet cleaner segment in Kerala through T Shine, they are now planning to expand to other states in southern region. JLL hopes for a big opportunity for its newly introduced product- antibacterial dish wash scrubber which saw ~35% growth in Q1FY19. Last year JLL has announced its plan to initiate into Ayurveda segment.
Strong volume growth to continue across power brands supported by strong pick up in rural demand. Surge in crude price can impact RM cost but cost efficiency measures and price hike is expected to support margins. We maintain our target price of Rs.252 by valuing at 36x on FY20E EPS and recommend Accumulate.
Analyst: Vincent K Andrews
Geojit Financial Services Ltd., INH200000345
For Disclosures and Disclaimers: Jyothy Laboratories Ltd (JLL): https://goo.gl/uD9iea
Avenue Supermarts Ltd (D’Mart), founded by Mr Radhakishan Damani, is a Mumbai based company which owns and operates the supermarket D-Mart. As of June 2018, D’Mart has 157 malls with retail business area of 5million sq. ft. The company offers a wide range of home and personal products under one roof with a focus on Foods, Non-Foods (FMCG), general Merchandise and Apparel product categories. D’Mart operates distribution and packing centres which form the backbone of its supply chain to support its retail store network. D’Mart has 23 distribution centres and 5 packing centres in Maharashtra, Gujarat, Telangana and Karnataka
D’Mart reported a strong revenue growth of 27% YoY largely supported by robust store additions. D”Mart has added 16 new stores during last 2 quarters and is now considering leased stores also to accelerate growth, due to slow pace of additions in own stores. The like-for like growth in revenue has declined to 14.2% in FY18 from 21% during FY16-17, due to increase in number of matured stores. However, the accelerated pace of store additions and growth in e-commerce business will support revenue growth in the coming years. We currently assume 30 store additions per annum in the long-term. We expect revenue growth of 29% CAGR over FY18-20E.
Gross margins (GM) has increased by mere 10bps as D”Mart sells at discount prices compared to peers. However, EBITDA margins expanded by 90bps to 9.3% on YoY basis due to reduction in costs. As a % of sales, employee expenses has reduced to 1.7% from 1.8% and other expenses to 4.7% from 5.3% on YoY basis. Going forward, we assume improvement in GM is very limited due to D’Mart’s conscious effort to sell its products at discount prices compared to peers on everyday basis. We assume GM to be in the range of 15%-16% for the long-term
PAT grew by strong 43%YoY supported by better operational performance and lower interest cost. D’Mart has reduced the debt by paying Rs899cr till Q1FY19 out of allocated amount of Rs1,080cr from IPO proceeds. Utilisation of the remaining Rs181cr will reduce interest cost further. Management expects Q1 PAT is likely to be better than full year results due to better operational performance in the quarter. We expect PAT growth of 35% CAGR over FY18-20E.
We assume high earnings growth to continue aided by accelerated growth in store additions, reduction in debt, tail winds from GST which will support higher premium in the medium term. We arrive at a revised target price of Rs1,662 (earlier Rs1,590) but downgrade to Hold (earlier Buy) due to premium valuation
Analyst: Vincent K Andrews
Geojit Financial Services Ltd., INH200000345
For Disclosures and Disclaimers: Avenue Supermarts Ltd (D’Mart): https://goo.gl/tMbhG
GCPL is a major player in the toilet soap, household insecticide and hair colour categories in the Indian FMCG market. It is a leader in the hair colour category with major brands include Godrej Expert Rich Hair Crème, Godrej Hair Dye (liquid and powder), Godrej Kesh Kala oil and etc. The company is the second-largest toilet soap marketer after Hindustan Unilever (HUL) with a ~10-12% market share and primary brands such as Godrej No. 1, Cinthol and FairGlow.
GCPL’s consolidated sales grew by 13.7% YoY driven mainly by Indian operations which recorded strong comparable growth of 14% YoY in Q1FY19. The entire growth in India business came on the back of volume growth (14%). International business reported comparable growth rate (in Constant Currency (CC) terms) of 7% YoY mainly led by Indonesia business which grew by 10% YoY in CC terms. Improvement in household insecticides (HI), new product launches and effective sales promotion helped the company grow ahead of the market in Indonesia. GAUM segment (includes Africa, US & Middle East) disappointed with 5% YoY increase in sales in CC terms due to weakness in South Africa business. However, business ex-South Africa grew in double digits. Others (Latin America, Europe & SAARC) reported 8% growth in CC terms.
India business delivered double digit volume growth across segments. HI clocked its highest growth in the last seven quarters with stupendous 17% YoY (comparable) growth in topline during the quarter aided by better season and new product launches. Hair colour segment also witnessed robust 12% YoY (like-to-like) increase supported by consistent performance of Godrej Expert Rich Crème, expanded distribution reach and market share gains. Soaps business led by effective micro marketing initiatives, focus on new states and strong on the ground execution grew by 10% YoY (comparable) during the quarter.
During the quarter, it launched Goodnight power chip system with an intent to upgrade the coil users to a more efficacious and affordable format. It also launched Goodknight Activ+ liquid vaporizer (LV) with 50% more efficacy at price of regular LV. To drive trials, it introduced fabric roll-on at an attractive price point of Rs. 20. The company has also forayed into the Rs1,000cr herbal-based powder hair colour segment under our Godrej Nupur brand. The company is planning a couple of more launches over next 3-4 months.
We expect sales/PAT CAGR of 11.4%/15.3% over FY18-21E given robust volume growth in India, recovery in Indonesia business and aggressive new product launches. Hence, we continue to maintain ‘HOLD’ rating on the stock.
Analyst: Abhijit Kumar Das
Dion Global Solutions Ltd., INH100002771
For Disclosures and Disclaimers: Godrej Consumer Products Ltd: https://goo.gl/TZmfYL