PL Stock Report - S Chand and Company (SCHAND IN) - Q4FY23 Result Update - Re-rating hinges on NCF roll out - BUY

S Chand and Company (SCHAND IN) - Jinesh Joshi - Research Analyst, Prabhudas Lilladher Pvt Ltd

Rating: BUY | CMP: Rs192 | TP: Rs257

Q4FY23 Result Update - Re-rating hinges on NCF roll out

Quick Pointers:

§ Guided revenue of Rs7,200-7,500mn with EBITDA margin of 16-18% for FY24E.

§ Restored dividend at Rs3 per share after FY18.

Though our FY24E EPS estimates are broadly intact, we increase our FY25E EPS estimates by 6% as full benefits of NEP implementation and benign paper prices will accrue over time. S Chand & Company (S Chand) reported decent performance in FY23 from working capital (188 days; best ever) and leverage (net debt of just Rs60mn) standpoint, but top-line was a miss at Rs6,103mn (management guidance of Rs6,400-6,500mn). For FY24E, management has guided 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 expect sales/EBITDA CAGR of 13%/23% over FY23-FY25E and maintain ‘BUY’ on the stock with a revised TP of Rs257 (12x FY25E EPS). Volatile RM prices and delay in NCF roll-out is a key risk to our call.

Top-line increased 14.2% YoY with Gross/EBITDA margin of 62.4%/37.6%: Top-line increased 14.2% YoY to Rs3,905mn (PLe Rs4,041mn). Gross profit increased 8.5% YoY to Rs2,436mn (PLe of Rs2,475mn) with a GM of 62.4% (PLe 61.2%) as against 65.7% in 4QFY22. Higher RM prices led to margin erosion of 330bps on YoY basis. EBITDA increased 3.1% YoY to Rs1,466mn (PLe Rs1,588mn) with a margin of 37.6%. PAT after MI decreased by 19.6% YoY to Rs1,030mn (PLe Rs1,072mn).

WC metrics improved and S Chand became net debt free: NWC improved to 188 days in FY23, led by improvement in receivable days and S Chand became net debt free in April-2023. The company also restored dividend at Rs3 per share after FY18.

Con call highlights: 1) Volume/value led growth was 9%/18% in FY23E. For FY24E, price hike is likely to be in the band of 6-8%. 2) Current RM inventory will suffice for 5-months and order for additional paper will be placed in June/July. 3) Imported paper formed ~35-40% of the RM cost in FY23 and the ratio is likely to rise to ~40-50% in FY24E (majority of imports are from Indonesia). 4) Sales and marketing spends will be in the range of 6-7% for FY24E (includes transportation cost). 5) For FY23, receivable days stood at 159 and the figure is likely to remain in the band of 120-150 days. 6) In FY23, Mylestone reported revenue and EBITDA loss of ~Rs160mn/~Rs20-30mn. For FY24E, revenue is expected to grow by 30% with positive EBITDA contribution. 7) OCF to be at Rs900-1,100mn in FY24E. 8) Direct sale to schools is ~5-7% as most of the business is conducted via channel partners.

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