Prabhudas Lilladher is bullish on S Chand and Company has recommended buy rating on the stock with a target price of Rs 400 in its research report dated December 04, 2018.
Prabhudas Lilladher's research report on S Chand and Company
In our recent interaction with S Chand Ltd (S Chand) management highlighted that 1) top-line growth guidance of 13-14% for FY19E remains intact 2) EBITDA margin expansion is on the cards as paper prices are locked in at just 4-5% increase over last sourcing cycle by preponing purchase contracts 3) working capital cycle is expected to ease out by 15-20 days on renegotiation of credit terms for certain best sellers and launch of dealer finance program 4) no incremental investment (Rs~1.43bn so far) in digital space is lined up with break-even expected in 3-4 years 5) collectively the company will have to shell out Rs~1-1.2bn in FY19E for Chetana’s acquisition and buying out balance 26% stake in Chhaya Prakashini 6) tax rate will be lower by 100-200bps in FY19E due to lower tax on few subsidiaries (<Rs2.5bn in revenues) and tax break in impending restructuring exercise.
S Chand is trading at 6.6x FY19E and 5.5x FY20E, in comparison to Navneet which is trading at 15.4x FY19E and 13.2x FY20E. We believe the current valuation gap should narrow given expected improvement in return ratios, margins and working capital cycle. Maintain BUY with a TP of Rs 400.
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