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Aug 21, 2014, 02.47 PM IST | Source: Moneycontrol.com

Buy Butterfly; target of Rs 355: ICICIdirect

ICICIdirect.com is bullish on Butterfly Gandhimathi Appliances and has recommended buy rating on the stock with a target of Rs 355 in its August 18, 2014 research report.

ICICIdirect.com`s research report on Butterfly Gandhimathi Appliances

“Butterfly Gandhimathi Appliances’ (BGAL) Q1FY15 revenues declined 48.3% YoY to Rs 107.0 crore due to absence of government sales. The branded sales revenues, however, grew 19% YoY. Despite higher ad spends, the company has maintained the operating margin 7.5% (down 30 bps YoY). Owing to a weaker topline and high fixed costs, PAT dipped from Rs 8.9 crore in Q1FY14 to Rs 0.2 crore in Q1FY15.”

“BGAL has been in the kitchen appliances segment for about four decades. The company has come out of BIFR and managed to record healthy revenue growth led by (a) capacity expansion, (b) government orders, (c) entry into new markets and (d) addition of new SKUs. We expect the last leg of capacity addition, entry into newer markets and the recent acquisition to boost sales. A fresh round of bidding for government orders is likely to happen in August/September 2014. We have not factored in any government orders. We expect revenues to increase from Rs 764.2 crore in FY14 to Rs 899.6 crore in FY16E. Though Q1FY15 has been relatively muted, the company is confident of achieving the growth target. After witnessing an operating margin expansion over the last few years, the operating margin is likely to remain subdued owing to the company’s expansion into the non-south region. BGAL needs to extend higher discounts to dealers to push their products. Also, the company has raised its ad spends, thereby pressurising the operating margin. We expect the operating margin to touch 9.5% in FY16E. Over the medium term, the management aims to touch the operating margin levels of its peers.”

“BGAL is trading at a discount to its peers (TTK Prestige and Hawkins Cookers). We believe the company is a re-rating candidate considering the strong turnaround that it has made and also the growth potential it has. Our earnings estimates have been revised downwards owing to higher fixed costs. However, we remain positive about the long-term prospects of the company. The company’s expansion in non-south regions is also picking up well and the acquisition of the LLM product portfolio would further boost revenues. We maintain BUY on Butterfly Gandhimathi with a revised target prices of Rs 355 (based on 14.0x FY16E EPS of Rs 25.5),” says ICICIdirect.com research report.

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