ICICIDirect's research report on McLeod RusselMcLeod Russel India (MRIL) reported Q3FY16 results, which were below our expectations. Net sales grew 6% YoY to | 501.6 crore (Idirect estimate: | 491.2 crore) Sales volumes showed a tepid increase to 28.1 million kg (mkg) (3.7% YoY increase) with realisation of | 177.74 per kg Due to revision of wages for CY15, employee cost was up 19.1% YoY. This, coupled with higher overhead expenses, resulted in 26.3% YoY decline in EBITDA to | 78.8 crore. In addition to lower EBITDA, higher interest outgo led to 29.2% YoY decline in PAT to | 57 crore (I-direct estimate: 89.6 crore) With the ~48 mkg fall in Africa tea production until November 2015 and 25% increase in African tea prices, domestic exports are expected to benefit in FY16E. With the below expected recovery in tea production, domestic prices are expected to remain stable in the medium term. However, wages are likely to increase at a more rapid pace. We expect this to continue to pressurise margins for the company. We value the company at 10x FY18E EPS of | 16.1 arriving at a target price of | 161/share with a HOLD recommendation. For all recommendations, click here Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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