December 29, 2015 / 16:51 IST
CRISL's Research report on KSEKSE Ltd.’s Q2FY16 revenue and earnings were below CRISIL Research’s expectations. Revenue fell 3.5% y-o-y to Rs 2,262 mn, as sales from the oil cake processing segment (11.8% of overall sales) dropped 31% y-o-y. Cattle feed sales (85.6% of total) grew marginally by 1.8% y-o-y. EBITDA margin corrected steeply from FY15 levels and contracted 502 bps y-o-y to 1.4%, mainly due to a sharp decline in refined coconut oil realisations and inability to pass on rise in raw material prices in the cattle feed division. As EBITDA fell, adjusted PAT declined 79.9% y-o-y to Rs 18 mn. Expected price hikes in cattle feed products and stable prices of refined coconut oil and copra cake prices are likely to result in an improvement in operating margins during H2FY16. We maintain our fundamental grade of 3/5. Cattle feed volume up marginally; oil cake processing division sales fell 10% y-o-y The cattle feed segment’s volume and realisations rose marginally to Rs 111,600/MT (up 0.5% y-o-y) and Rs 17,300/MT (up 1.3% y-o-y), respectively. In comparison, the oil cake processing division saw volume rise 11.7%, yet revenue declined 10% y-o-y to Rs 532 mn, as refined coconut oil realisations fell 34% y-o-y. The dairy segment’s revenue (2.7% of sales) grew 4% y-o-y to Rs 61 mn. We expect overall revenue to record tepid growth of 3% CAGR over FY15- 17.
During the quarter, the fall in prices of copra cake (key raw material for oil cake processing) by 9.7% was inadequate to offset the sharp 34% y-o-y decline in refined coconut oil prices. Resultantly, the oil cake processing division saw EBIT margin contract sharply to 8.8%, compared with 20.5% in Q2FY15. The cattle feed division incurred an EBIT loss of Rs 24 mn (vis-à-vis Rs 18 mn as of Q2FY15), due to the company’s inability to fully pass on the rise in prices of key raw materials (rice bran and maize). Hence, overall EBITDA margin contracted to 1.4% - the lowest in ten quarters. Price hikes in the cattle feed segment and stable refined coconut oil and copra cake prices are expected to improve the operating margin in H2FY16.
We have lowered our revenue and earnings estimates for FY16-17. However, impact of the revision on valuation is negligible as we have maintained our long--term margin estimates. Thus, we have maintained our discounted cash flow (DCF)-based fair value at Rs 450. The fair value implies P/E multiples of 13.6x FY16E and 8.5x FY17E EPS. At the current market price of Rs 662, our valuation grade is 1/5.Disclaimer: This report (Report) has been commissioned by the Company/Investor/Exchange and prepared by CRISIL. The report is based on data publicly available or from sources considered reliable by CRISIL (Data). However, CRISIL does not guarantee the accuracy, adequacy or completeness of the Data / Report and is not responsible for any errors or omissions or for the results obtained from the use of Data / Report. Opinions expressed herein are CRISIL's opinions as on the date of this Report. The Data / Report are subject to change without any prior notice. Nothing in this Report constitutes investment, legal, accounting or tax advice or any solicitation, whatsoever. The Report is not a recommendation to buy / sell or hold any securities of the Company. CRISIL especially states that it has no financial liability, whatsoever, to the subscribers / users of this Report. This Report is for the personal information of the authorized recipient only. This Report should not be reproduced or redistributed or communicated directly or indirectly in any form to any other person or published or copied in whole or in part especially outside India, for any purpose.
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