Himatsingka Seide Q3FY14 results update
February 7, 2014, Friday, 18:59 GMT | 13:59 EST | 23:29 IST | 01:59 SGT
Himatsingka Seide Ltd (HSL) has reported in-line numbers where Net sales increased by 15.2% YoY to Rs 499.2cr. With the decline in raw-material cost, Gross margin improved by 480bps YoY and by 120bps QoQ to 36.3% in Q3FY14. But same was not able to get translated in EBITDA due to higher employee and Other expenses. EBITDA margin improved by 40bps YoY to 10.4% in Q3FY14. Despite company reporting a forex loss of Rs 1.6cr during the quarter, Adj PAT grew by 32% YoY to Rs 17.2cr due to lower tax outgo.
Manufacturing business holds overall performance: Net sales increased by 15.2% YoY to Rs. 499.2cr and down by 7.5% QoQ. Except Manufacturing business which reported a growth by 45.3% Yoy all other segment reported de-growth: European business (-4.3% YoY to €2.9mn), North America business (-5.5% YoY to US $65.4mn) and Atmosphere business (-6.3% YoY to Rs 14.1cr). Strong revenue growth in manufacturing business and substantial decline in raw-material cost, EBITDA was up by 19.5% YoY to Rs 51.9cr. Though EBITDA was down by 5.1% QoQ. EBITDA margin improved by 40bps YoY and by 20bps QoQ to 10.4% in Q3FY14. However, Gross margin improved by 480bps YoY to 36.3% in Q3FY14 and by 120bps QoQ.
Europe continues to remain under pressure and EBITDA margin improvement in North America: Distribution revenues in Europe through “Bellora” brand decreased by 4.3% YoY to €2.9mn and by 20.5% QoQ. EBITDA margin stood at negative 11.5% in Q3FY14 as against negative 15.3% in Q3FY13 and negative 8.1% in Q2FY14. The entity continues to face the negative impact of slowdown in Europe, resulting in losses for the past couple of years. HSL took some initiatives to negate the impact of slowdown in Europe. Firstly, the company expanded its reach to North America, China, GCC (Gulf Cooperation Council) region and also to Russia by appointing new distributors. Secondly, the company kept its costs under control. Thirdly, Bellora will be used as a sourcing hub for ‘Made in Italy’ products for the US markets. With the series of strategies implemented, management sounds confident of turning Bellora EBITDA positive in next three years. Additionally, North America business reported improvement in EBITDA margin by 120bps YoY to 5.2% in Q3FY14 though it was down by 130bps QoQ.
Adj PAT escalated by 32% YoY: Despite derivative loss/exceptional item of Rs 1.6cr during Q3FY14 and no loss/gain in Q3FY13, Adj PAT grew by 32% YoY to Rs 17.2cr due to lower tax outgo which stood at 14.8% in Q3FY14 as against 27.6% in Q3FY13 and 28.2% in Q2FY14.
Valuation & Recommendation
At CMP of Rs. 54, the stock is trading at a PE of 8.3x FY14E and 5.5x FY15E. We feel that the improvement in drapery and upholstery capacity utilization and improvement in distribution business will be the key driver of sales growth going forward. Further, lower capex and reducing debt level would keep interest costs and depreciation charges under check, thereby leading to a rise in profitability. We maintain our target price of Rs. 67 per share (valued on PE 6.5x FY15E) and recommend to HOLD the stock.