ICICI Direct's research report on Rupa and Company
Rupa reported a subdued set of Q3FY19 numbers wherein numbers were below our estimates across all our parameters Revenues for the quarter grew marginally by 2.1% YoY to Rs 283.0 crore (I-direct estimate: Rs 302.3 crore). Oban Fashion’s [which licensees Fruit of the Loom (FOL) and FCUK brands] reported revenues worth ~Rs 14 crore in Q3FY19 Gross margins improved 108 bps YoY to 33.3%. However, owing to negative operating leverage (employee and other expenses up 62 bps and 40 bps, respectively), EBITDA margins came in flattish at 14.9%. Subsequently, absolute EBITDA increased only 2% YoY to Rs 42.3 crore (I-direct estimate: Rs 46.7 crore) A substantial increase in finance cost (up 140% YoY to Rs 5.1 crore) negatively impacted PAT growth. Resultant PAT declined 5.4% YoY to Rs 22.6 crore (I-direct estimate: Rs 26.4 crore).
Outlook
Subsequently, we expect RoCE to be range bound at 22-23% for FY19, FY20E. Factoring in the 9MFY19 performance, we revise our estimates downwards and expect sales and PAT CAGR of 8% and 11%, respectively, in FY18-20E. A revival in revenue remains critical for a re-rating of the stock. We have a HOLD rating on the stock with a revised target price of Rs 340 (2.0x FY20E MCap/sales).
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