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Published on 7/12/2018 10:37:42 AM | Source: Religare Securities Ltd

Buy Asian Granito India Ltd For Target Rs.234.00 - Religare Sec

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Dismal performance continues

Asian Granito’s (AGIL) Q2FY19 numbers were disappointing and below our estimates on all parameters. While the volume growth was 8.4% YoY, poor realizations impacted the overall revenue growth, which stood in low single digits at 2.9% YoY. EBITDA margins contracted sharply by 712bps YoY to 6.4%, impacted by muted realization, higher gas prices and staff cost. Going forward, we expect AGIL’s volume offtake to improve. However, pricing pressure and higher gas prices could continue to impact the margins in the near term. We expect the margin trajectory to improve gradually (largely in FY20E). Nonetheless, we remain positive on the company’s long term growth prospects, considering positive industry outlook and company’s continued focus on innovative and value added product offerings. We maintain Buy on the stock with revised target price of Rs 234.

 

Q2FY19 Result Update :

*  AGIL’s consolidated net revenue increased by 2.9% YoY to Rs 238.7cr, below our estimates. While volume growth was at 8% YoY (27% growth in trading volumes) poor realizations (due to pricing pressure in the Glazed Vitrified Tiles) impacted the overall revenue growth. Outsourced segment witnessed a sharp decline in realization. Transportation strike in second half of July 2018 and Kerala floods resulted in subdued volume growth. Tiles division (87% revenue share) grew marginally by 0.6% YoY, while sales of marble & quartz surged 20.1% YoY.

*  Consolidated EBITDA declined by 51.3% YoY to Rs 18cr, while EBITDA margins contracted sharply by 712bps YoY to 6.4%, impacted by muted realizations, higher gas prices and a sharp rise in the staff cost (+230bps YoY as % to net revenue). Other expenses were up by 330bps YoY, largely led by higher power & fuel cost. PAT fell by 69.9% YoY to Rs 2.9cr, impacted by lower other income and higher depreciation cost.

Other Highlights :

i) The management expects volume growth to revive in H2FY19 on the back of healthy demand environment. However, it stated that profitability will depend on acceptability of the recent price increase by majority players in the industry; ii) With higher sale of value added products and improvement in utilization, it expects margin improvement in the coming quarters; iii) Key focus going forward would remain on increasing share of premium and value added products (targeting >50% revenues); iv) Gas prices have increased by around 23% since April 2018 till date 

 

Outlook & Valuation

AGIL has displayed subdued performance in H1FY19 with marginal growth of 4.2% in revenue and a sharp decline of 42.1% & 59.2% in EBITDA and PAT, impacted by significant pricing pressure in Tiles segment and continued rise in the gas prices. Going forward, we expect AGIL’s volume offtake to improve. However, pricing pressure and higher gas prices could keep the margins under check in the near term. Nonetheless, we remain positive on the company’s long term growth prospects, considering positive industry outlook and company’s continued focus on innovative and value added product offerings. We expect the margin trajectory to improve gradually on the back of better product mix and higher utilization, with a meaningful improvement estimated in FY20E. The recent selective price hikes could provide further cushion to profitability. Based on revision in our earnings estimates for FY19E & FY20E post weak Q2, we arrive at revised target price of Rs 234. Maintain Buy. 

 

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