CRISIL maintains valuation grade of 4/5 to Butterfly

CRISIL Research has come out with its report on Butterfly Gandhimathi Appliances . The research firm has maintained the fundamental grade of 3/5 to the company in its June 22, 2012 report.

Butterfly Gandhimathi Appliances Ltd’s (Gandhimathi’s) Q4FY12 results were below CRISIL Research’s expectations. While revenue of Rs 2,190 mn (+252% y-o-y) was in line, EBITDA margin of 4.9% was significantly below our expectations due to higher raw material costs and rupee depreciation. Q4FY12 raw material costs increased to 75% of sales from 60% of sales in Q3FY12. PAT of Rs 47 mn was below our expectations because of contraction in EBITDA margin. The company plans to pass on the increase in costs to customers by taking a 5% price hike. We maintain our fundamental grade of 3/5 as we believe that the company’s longterm fundamentals are intact.

Q4FY12 result update:

• Revenue of Rs 2,190 mn grew by 252% y-o-y because of the Rs 1,500 mn Tamil Nadu government order. The company had completed government orders worth Rs 2,850mn. FY12 revenue of Rs 5,947 mn (+125% y-o-y) was in line with our expectations.
• EBITDA margin was down 994 bps q-o-q (-725 bps y-o-y) to 4.9% because of higherthan- expected rise in raw material costs, which increased from 60% of sales in Q3FY12 to 75% of sales. The increase in raw material cost was on account of the following factors: a) increase in cost of imports because of rupee volatility; b) low-margin government orders comprise 69% of total sales in Q4FY12 vs. our estimate of 55%.
• PAT of Rs 47 mn, down 60 bps q-o-q, was also lower than our expectation because of contraction in EBITDA margin. FY12 PAT was Rs 302 mn (+132% y-o-y).

FY13 and FY14 EBITDA margin estimates lowered because of rupee depreciation:
We maintain our FY13 and FY14 revenue estimates of Rs 6.7 bn and Rs 7.6 bn respectively. However, FY13/FY14 EBITDA margin estimates are lowered from 11.4% each to 10.4% and 10.9%, respectively, due to rupee depreciation. In Q1FY13, the rupee has depreciated by ~12% to 53.6/US$ from FY12 average of 48.1/US$. The FY13/FY14 EPS estimates are lowered from Rs 24.8 and Rs 28.8 to Rs 20.8 and Rs 25.8 respectively.

Valuations: Current market price has upside
We continue to value Gandhimathi by the discounted cash flow method. Our fair value estimate is lowered from Rs 460 to Rs 405 because of the downward revision in estimates. At the current market price of Rs 325, the implied valuation grade is 4/5.

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