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Result Update: Shankara Building Products Ltd - BUY - TP Rs.1537 - Kotak

Posted On: 2018-11-19 13:54:15

Shankara Building Products Ltd revenues were lower than our estimates due to impact of heavy floods in Kerala and South Karnataka. Margins were also impacted by lower margins in retail segment, lower processing margins and inventory loss. Company is looking at higher revenue trajectory and in this process, margins may get impacted to some extent as a trade-off between higher revenues and slightly lower than expected margins.

Key highlights

- Revenue growth of 12.6% YoY is led by incremental stores, increase in average ticket size as well as addition of new products. Net profits were impacted by fall in margins and declined by 49% YoY.

- Company added 2 stores in Q2FY19 and increased the proportion of retail segment sales to 52% from 48% in Q2FY18 with new store addition and store upgradation.

Valuation and outlook

At current price of Rs 970, stock is trading at 19.4x P/E and 10.1x EV/EBITDA on FY20 estimates. We continue to remain positive on the company as it is likely to benefit from increasing shift towards organized retail in home building segment. Company is witnessing improved traction in the retail segment, addition of more brands and addition of large format stores at low rentals. We, however, revise our margin estimates downwards to factor in the impact of Kerala floods, lower margins in channel and enterprise segment as well as change in the strategy of the company towards higher revenue growth at slightly lower margins. We arrive at a revised price target of Rs 1537 based on 20x EV/EBITDA for retail business and 4x EV/EBITDA for channel and enterprise business. (Rs 2017 earlier). Maintain BUY.

Shares of Shankara Building Products Ltd was last trading in BSE at Rs.840.05 as compared to the previous close of Rs. 894.2. The total number of shares traded during the day was 19626 in over 1257 trades.

The stock hit an intraday high of Rs. 900.95 and intraday low of 836. The net turnover during the day was Rs. 16897643.


Source: Equity Bulls

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