Buy Nilkamal; target Rs 400: Sushil Finance

“Nilkamal Ltd. has delivered decent set of numbers for the quarter ended 30th Sep, 2011 (Q2FY12). It has posted net sales (on a standalone basis) of Rs.3522.1 mn, registering a growth of 10.6% YoY. Its EBITDA grew by 11.3% YoY to Rs. 406 mn and EBITDA margins were almost flattish at 11.5%. Its RPAT fell marginally by 3.8% to Rs. 154.2 mn mainly on account of foreign exchange loss of Rs. 17.9 mn. Its AEPS for Q2FY12 stood at Rs. 11.53. During HIFY12, Nilkamal’s net sales (on a standalone basis) increased by 11.5% to Rs. 6735.3 mn. Its EBIDTA increased by 9% at Rs. 745.6 mn, while the EBIDTA margins decreased by 26 bps to 11.07%. Its APAT stood flattish at Rs. 294.5 mn. It’s RPAT decreased marginally by 5.3% to Rs. 276.6 mn. Its AEPS for H1FY12 stood at Rs.19.7. The company has incurred a CAPEX of approximately Rs. 400 mn in H1FY12. Its EBIDTA margins during Q2FY12 would have been higher but for a 17.5% YoY rise in other expenditure. The increase in other expenditure was contributed by items like high advertising & marketing costs, high initial new @Home stores opening expenses (at Kochi & Pune), increased carriage outward charges, etc. Moreover, its Raw material cost might get impacted in the H2FY12 due to the sharp 15% depreciation in the rupee against the US Dollar, to the extent company is unable to pass on the cost increases over the coming months. Another reason for flattish APAT was the rise in interest & deprecation cost as a result of increase in cost of funds and capital expenditure incurred during the previous financial year (FY11).”

“During the quarter, the net sales in plastic business increased by 10% YoY to Rs. 2992 mn and the EBIT margins in plastic business continued reflecting the path of recovery by achieving a margin of 12.36% in Q2FY12 as compared to 12.24% Q1FY12. However this was achieved with the help of the volume and the value growth of 2% and 10% respectively. The retail segment (@ Home) Revenues during the quarter increased by 14% YoY to Rs. 536.4 mn and posted an EBIT of Rs. 12.8 mn. Nilkamal has started its mattresses business in the western and southern part of India and has received a good response from the market. The Company has launched for the first time in India, a new Dual surface mattress i.e. Firm and soft on the same side of the mattress. Further, the Company is gearing up to start the manufacturing of mattresses by the end of Q3FY12.”

“Nilkamal, with its strong market presence and brand value, continues to dominate the industry in its plastic business. Going forward, we expect new product launches, rise in volumes of value added products and capacity expansion to drive its Revenues. After considering its performance in H1FY12 and the possible impact of the sharp rupee depreciation on the volumes & margins of the company, we have reduced our estimates of FY12 and FY13. We now expect its FY12 & FY13 revenues to grow 12.2% & 15.6% and its FY12 APAT to be flattish and thereafter grow by 10.8% in FY13. At the CMP of Rs.237, the stock is available at an attractive valuation of 5.9x its FY13E earnings of Rs.40. We maintain our “BUY” Rating on the stock with a reduced Target price of Rs 400 (10x its FY13E earnings of Rs. 40),” says Sushil Finance research report.

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