PL Stock Report: S Chand and Company (SCHAND IN) - Q1FY24 Result Update - GM springs a positive surprise - BUY
Prabhudas Lilladher Pvt Ltd
S Chand and Company (SCHAND IN) - Jinesh Joshi - Research Analyst, Prabhudas Lilladher Pvt Ltd
Rating: BUY | CMP: Rs198 | TP: Rs260
Q1FY24 Result Update - GM springs a positive surprise
Quick Pointers:
§ Board approval taken for an investment upto Rs200mn to explore an inorganic opportunity in education domain.
§ GM jumps sharply to 68.8% amid better print runs and low wastage.
S Chand & Company (S Chand) reported strong operational performance due to better than expected GM of 68.8% (PLe 61.0%) resulting from better print runs and low wastage. Consequently, bottom-line was in black for the first time ever in 1Q (base quarter PAT was Rs62mn amid a onetime gain of Rs98mn on revaluation of Smartivity Labs; adjusting for it losses were Rs36mn). For FY24E, management is guiding for a top-line of Rs7,200-7,500mn with EBITDA margin of 16-18% backed by price hike, RM stabilization and increased volumes that would come from NCF roll-out. We keep our FY24E/FY25E EPS estimates broadly intact and expect sales/EBITDA CAGR of 13%/23% over FY23-FY25E. S Chand has a net cash BS and trades at attractive valuations of 11x/9x our FY24E/FY25E EPS with an expected FCFF yield of 14% in FY25E. We maintain BUY on the stock with a revised TP of Rs260 (12x FY25E EPS). Volatile RM prices and delay in NCF roll-out can act as a key risk to our call.
Top-line increased 3.5% YoY with Gross/EBITDA margin of 68.8%/12.2%: S Chand reported highest-ever 1Q revenue at Rs1,111mn (PLe of Rs1,052mn), up 3.5% YoY. Gross profit increased 5.8% YoY to Rs765mn (PLe of Rs641mn) with a GM of 68.8% (PLe 61.0%) due to better production planning and lower wastage. EBITDA grew by 13.5% YoY and stood at Rs135mn (PLe EBITDA Loss of Rs63mn) as against an EBITDA of Rs119mn in 1QFY23. PAT declined 83% YoY driven by lower other income and stood at Rs11mn in 1QFY24 (PLe Loss of Rs133mn). However, in the base quarter there was a revaluation gain of Rs98mn on Smartivity Labs. Adjusting for it, loss in 1QFY23 stood at Rs36mn versus a PAT of Rs11mn in 1QFY24.
Best 1Q WC metrics: NWC was down 19 days on YoY basis to 143 days in 1QFY24, led by improvement in receivable cycle to 103 days (139 days in Q1FY23). Further, S Chand turned net debt free and had a net cash balance of Rs546mn at the end of the quarter.
Con call highlights: 1) For FY24E, price hike is likely to be in the band of 6-7%. 2) Paper prices were down 8-10% YoY, and 60% of the 18-20k tons of annual paper requirement has already been contracted from Indonesia. 3) Import to domestic RM mix is 60:40. 4) Sales return is expected to decline from 15.8% in FY23 to 14-14.5% in FY24E. 5) 500 new SKUs are to be launched in FY24E with upgraded/new/revised content forming 50%/25%/25% of the total SKUs respectively. 6) S Chand is exploring an inorganic opportunity and has ear-marked a sum of Rs200mn odd. 7) Out of Rs1,065mn FG inventory on BS, roughly Rs300mn worth of stock is lying with channel partners.