Hold Mcleod Russel; target of Rs 242: ICICIdirect

ICICIdirect.com's report on Mcleod Russel (India)

McLeod Russel India Ltd. (MRIL) reported its Q4FY15 results which were below our estimates on all fronts. Net sales de-grew by of 2.1% YoY to Rs 307.9 crore (I-direct estimate: Rs 331.8 crore) on the back of lower tea production in FY15

Domestic sales volume stood at 18 million kg (59% increase) with realization of Rs 145 per kg. However, export volumes dipped by 75% to 2.3 million kg with realization of Rs 208 per kg due to robust Kenyan tea production which resulted in decline of tea prices globally coupled with domestic crop loss faced by MRIL in 2014

The company witnessed a net loss of Rs 208 crore (I-direct estimate: Rs 170 crore loss) on the back of higher operating loss due to lower price realisation

"Given, crop loss of 6.3 million kg in FY15, lower export volumes & subdued performance of African business, earnings saw a fall from Rs 257.2 crore in FY14 to Rs 31.2 crore in FY15. However, with the 26.8% fall in Kenya tea production until March 2015 & 25% increase in global tea prices, domestic exports are expected to benefit in FY16. Though, with the recovery in tea production, domestic prices are expected to remain stable in medium term. We value the company at 11x FY17E EPS of |22 arriving at a target price of Rs 242/ share", says ICICIdirect.com research report.

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