Prabhudas Lilladher's research report on S Chand and Company
S Chand reported a decent performance with PAT margin of 36.7% (PLe of 35.5%) on the back of strong tailwinds from school re-openings coupled with a price hike of ~5-10% taken across product portfolio. Management commentary for FY23E is bullish with a top-line guidance of Rs6,000mn+ complemented by a price hike of 12-15%. However, given persistent RM cost inflation GM can be under pressure prompting us to cut our EPS estimates by 37%/12% for FY23E/FY24E as we re-align our COGS assumptions. Subsequent to turning PAT positive after a gap of 3 years, we believe S Chand’s turnaround is complete and the company is back on growth track. We expect sales/PAT CAGR of 18%/121% over FY22-24E amid favorable base and maintain BUY on the stock with a TP of Rs156. S Chand trades at 11x/6x our FY23E/FY24E EPS estimates and we believe valuations are attractive given 1) strong growth guidance 2) strengthening BS (net debt of Rs721mn in FY22 with an intention to be net debt free by 4QFY23) and 3) improved NWC metrics (cash conversion cycle has improved from 318 days in FY19 to 226 days in FY22).
We increase our target P/E multiple to 9.5x (8.5x earlier) to partially account for optionality arising from nearing NEP implementation timeline and improvement in BS and NWC metrics. Reiterate BUY. Near term pressure on GM is a key risk to our call.
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