Hold McLeod Russel; target of Rs 160: ICICI Direct
ICICI Direct recommended hold rating on McLeod Russel with a target price of Rs 160 in its research report dated August 10, 2017.
ICICI Direct's research report on McLeod Russel
McLeod Russel was able to restrict its losses for the quarter on account of higher production and sales volume. Revenue for the quarter grew 8.1% YoY to Rs 193.4 crore (I-direct estimate Rs 167.7 crore) primarily on account of 11% growth in volumes to 11.1 lakh kg However, the blended price continued to remained under pressure and declined 1.6% YoY to Rs 168.4/kg. Domestic prices continued to remain under pressure and were largely flat YoY. Conversely, prices at Mombassa auctions jumped ~20% YoY to US$2.8/kg as production in Kenya declined (down by 50 mn kg YTD) Production at 241 lakh kg was up 9.5% YoY (primarily due to growth in own leaf production). Employee cost continued to increase for the quarter on account of wage revision and was up 13.9% YoY. Led by higher production, EBITDA came in at Rs 10.3 crore against EBITDA loss of Rs 14.8 crore in the same quarter last year against our estimate of EBITDA loss of Rs 15.9 crore Revenue growth & positive EBITDA helped the company curb the loss at Rs 1.7 crore for quarter against loss of Rs 17.3 crore in Q1FY17.
We estimate revenue for the company will grow at a CAGR of 10.2% in FY17-19E on a low base formed in FY17. However, increasing employee cost would restrict significant improvement in operating margin and expect it at 7.1% for FY19E. We maintain our cautious view on the stock in the absence of any operational improvement. We reiterate our HOLD recommendation on the stock with a revised target price of Rs 160.
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