shankara building products ltd. absolute : add relative...
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February 1, 2018 Analyst: Maulik Patel [email protected] (+91-8128694110) Page 1 of 14
Before reading this report, you must refer to the disclaimer on the last page.
Shankara Building Products Ltd. Absolute : ADD
Relative : Benchmark
3QFY18 Results: Estimates (), TP (), Rating () Regular Coverage 5% ATR in 20 Months
Strong retail performance; maintain ADD Plastics
© 2017 Equirus All rights reserved
Rating Information
Price (Rs) 1,720
Target Price (Rs) 1,859
Target Date 30th Sep'19
Target Set On 31st Jan'18
Implied yrs of growth (DCF) 20
Fair Value (DCF) 984
Fair Value (DDM) 248
Ind Benchmark BSETCG
Model Portfolio Position NA
Stock Information
Market Cap (RsMn) 33,610
Free Float (%) 43.80 %
52 Wk H/L (Rs) 1574.6/545
Avg Daily Volume (1yr) 604,406
Avg Daily Value (RsMn) 636
Equity Cap (RsMn) 228
Face Value (Rs) 10
Bloomberg Code SHANKARA IN
Ownership Recent 3M 12M
Promoters 56.2 % 0.0 % -
DII 9.9 % -3.8 % -
FII 14.3 % 3.6 % -
Public 19.7 % 0.2 % -
Price % 1M 3M 12M
Absolute -10.8 % 6.5 % -
Vs Industry -8.8 % 1.3 % -
APL Apollo 8.9 % 15.9 % 106.5 %
DMART 1.2 % 4.8 % -
Consolidated Quarterly EPS forecast
Rs/Share 1Q 2Q 3Q 4Q
EPS (18E) 7.5 7.6 7.7 11.7
EPS (19E) 11.4 11.4 11.4 11.4
Shankara Building Products (Shankara) reported a 16% yoy growth in its 3QFY18 revenues
to Rs 6.3bn driven by strong retail growth of 32% yoy. EBITDA growth at 13% yoy was
driven by margin improvement in the retail segment. After a few sluggish quarters,
retail growth has rebounded on higher store addition, better SSSg and acquisition of
Vaigai Sanitation stores. Growth should improve further as construction activity picks up
and liquidity improves. Revenue mix changes towards high-margin retail and an
improvement in the processing segment should support (a) margin expansion, (b)
16%/30% EBITDA/PAT CAGR over FY17-FY20E, and (c) a ~400bps RoE expansion to 22%.
We roll over to a Sep’19 TP of Rs 1,859 (from a Mar’19 TP of Rs 1,564 earlier). Strong retail growth of 32% yoy: Retail revenues for the quarter stood at Rs 3bn, up
22% yoy driven by (1) a weak base, (2) strong store addition, (3) healthy SSSg led by a
recovery in construction activities, and (4) additional revenue (~Rs 90mn) from
acquisition of Vaigai Sanitation in Chennai. Retail EBITM improved ~240bps to 10.4%,
leading to strong EBITDA growth of 72%. The company added six new stores during the
quarter, taking the store count to 124. We expect 20% revenue CAGR over FY17-FY20E
led by (a) 15-20 store additions every year supported by 13%/15% SSSg in FY18E/FY19E,
(b) addition of home improvement categories, (c) upgrades of existing stores, (d)
acquisition of local stores and (e) unorganized to organized shift led by GST. Channel segment revenues flat on weak base: A conscious decision to reduce
channel segment sales led to just 1% growth in segment revenues to Rs 1.2bn.
Enterprise segment grew 5% yoy due to a pick-up in industrial/construction activities.
EBIT for channel & enterprise segment declined 36% yoy with margins contracting
~340bps yoy due to exceptionally high margins in the year-ago quarter. Acquisition of JP Sanitation stores to enhance presence in Bangalore: Shankara
acquired three stores of JP Sanitation (JP), an established brand in Bangalore. With
more than 30 years of operations, JP has built a significant connect with home
owners, architects, builders and home suppliers. Synergies to Shankara should flow in
the form of increasing revenues in Home Improvement categories with cross-selling of
products to customers. EBITDA expands on lower other expense, PAT up 29% yoy: Other expenses declined
10% yoy while employee expenses increased 31% yoy, leading to a 13% growth in
EBITDA to Rs 408mn. Strong EBITDA growth coupled with a decline in interest costs
(-16% yoy) to Rs 110mn pushed up PAT by 29% yoy Rs 177mn, 9% below EE.
Changes in estimates
FY18E %
Change FY19E %
Change
Sales 24,601 0% 26,453 0%
EBITDA 1,731 1% 2,033 3%
EBIT 1,602 1% 1,889 4%
PAT 791 2% 1,040 4%
Consolidated Financials
Rs. Mn YE Mar FY17A FY18E FY19E FY20E
Sales 23,101 24,601 26,453 29,314
EBITDA 1,544 1,731 2,033 2,401
Depreciation 114 129 144 155
Interest Expense 508 403 313 240
Other Income 3 5 0 0
Reported PAT 603 791 1,040 1,323
Recurring PAT 603 791 1,040 1,323
Total Equity 3,937 4,618 5,439 6,488
Gross Debt 2,236 1,736 1,236 836
Cash 662 6 -50 92
Rs Per Share FY17A FY18E FY19E FY20E
Earnings 26.4 34.6 45.5 57.9
Book Value 172 202 238 284
Dividends 0.0 4.1 8.2 10.3
FCFF 45.4 -24.4 38.1 42.6
P/E (x) 65.2 49.7 37.8 29.7
P/B (x) 10.0 8.5 7.2 6.1
EV/EBITDA (x) 22.9 21.0 17.6 14.7
ROE (%) 18 % 18 % 21 % 22 %
Core ROIC (%) 16 % 16 % 17 % 19 %
EBITDA Margin (%)
7 % 7 % 8 % 8 %
Net Margin (%) 3 % 3 % 4 % 5 %
Shankara Building Products Ltd. Absolute – ADD Relative – Benchmark 5% ATR in 20 Months
February 1, 2018 Analyst: Maulik Patel [email protected] (+91-8128694110) Page 2 of 13
Exhibit 1: Retail revenues grew 32% yoy, channel & enterprise revenues 1%/5% yoy
Source: Company, Equirus Securities
Exhibit 2: Retail margins improved on better product mix, operational efficiencies
Source: Company, Equirus Securities
Exhibit 3: Retail revenues grew by strong 32% yoy on low base
Source: Company, Equirus Securities
Exhibit 4: Adjusted for excise duty, overall revenues grew 30% yoy
Source: Company, Equirus Securities
2,232 2,664
2,261 2,650 2,700 2,729 2,989
1,932 1,855
1,914 1,893 1,906 1,770
2,012
1,506 1,501
1,232 1,460 1,310
1,217
1,245
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18
Retail (In Rs Mn) Enterprise (In Rs Mn) Channel (In Rs Mn)
215 292
180 270 300 287 310
219 89 277
251 184 164 177
-126
-38
-122 -92
-120 -70
-108 -200
-100
0
100
200
300
400
500
600
1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18
Retail EBIT(In Rs Mn) Channel & Enterprise EBIT(In Rs Mn) Corporate Overhead Exp.
2,232
2,664
2,261
2,650 2,700 2,729
2,989 19%
-15%
17%
2% 1%
10%
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
0
500
1,000
1,500
2,000
2,500
3,000
3,500
1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18
Retail revenues (In Rs Mn) YoY Growth
Shankara Building Products Ltd. Absolute – ADD Relative – Benchmark 5% ATR in 20 Months
February 1, 2018 Analyst: Maulik Patel [email protected] (+91-8128694110) Page 3 of 13
Exhibit 5: Retail revenues to grow at a strong pace in overall sales mix
Source: Company, Equirus Securities
Exhibit 6: ~15-20 new stores to be added every year resulting in rise in total sq. ft.
Source: Company, Equirus Securities
Exhibit 7: SSSg to decline in FY18 amid tough conditions, to pick up in FY19E
Source: Company, Equirus Securities
Exhibit 8: Increasing share of retail in overall sales mix
Source: Company, Equirus Securities
8.1
2.2 2.7 2.3 2.7 2.7 2.7
11.6 13.8
16.8
5.7
1.5 1.5 1.2 1.5 1.3 1.2
5.0 4.0
3.2 6.6
1.9 1.9 1.9 1.9 1.9 1.8
8.0 8.6
9.3 20.4
5.7 6.0 5.4 6.0 5.9 5.7
24.6 26.5
29.3
0
5
10
15
20
25
30
35
FY16
1Q
17
2Q
17
3Q
17
4Q
17
1Q
18
2Q
18
FY18E
FY19E
FY20E
Retail (In Rs Bn) Channel (In Rs Bn) Enterprise
96 97 100 103 106 112
118 129
148
166
323 344
365 373 381 401
441
508
612
711
200
300
400
500
600
700
800
0
20
40
60
80
100
120
140
160
180
FY16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 FY18E FY19E FY20E
Store Counts Square feet (In 000)
13%
24%
28%
19%
13% 15%
18%
0%
5%
10%
15%
20%
25%
30%
FY14 FY15 FY16 FY17 FY18E FY19E FY20E
SSG
2.9 3.8 4.6 6.2 8.1 9.8 11.6 13.8
16.8 6.4
7.6 7.6 6.8
5.7 5.7
5.0 4.0
3.2
4.8
6.2 7.1 6.8 6.6
7.6 8.0
8.6
9.3
14
18 19 20 20
23 25
26
29
0
5
10
15
20
25
30
35
0
5
10
15
20
25
30
35
FY12 FY13 FY14 FY15 FY16 FY17 FY18E FY19E FY20E
Retail Channel Enterprise
Shankara Building Products Ltd. Absolute – ADD Relative – Benchmark 5% ATR in 20 Months
February 1, 2018 Analyst: Maulik Patel [email protected] (+91-8128694110) Page 4 of 13
Exhibit 9: Conscious decline in processing revenues a part of strategy
Source: Company, Equirus Securities
Exhibit 10: Expect EBITDA/PAT CAGR of 16%/30% over FY17-FY20E
Source: Company, Equirus Securities
Exhibit 11: Return rations to improve by ~300bps over next 2 years
Source: Company, Equirus Securities
3.0 4.9 6.4 8.8 10.0 12.5 13.8 15.5 17.2
21%
28%
33%
45% 49%
54% 56%
58% 59%
0%
10%
20%
30%
40%
50%
60%
70%
0
2
4
6
8
10
12
14
16
18
20
FY12 FY13 FY14 FY15 FY16 FY17 FY18E FY19E FY20E
Processing Revenue as % of sales
704 871 886 895
1,196
1,544 1,731
2,033
2,401
316 318 286 226 407
603 791
1,040
1,323
0
500
1,000
1,500
2,000
2,500
3,000
FY12 FY13 FY14 FY15 FY16 FY17 FY18E FY19E FY20E
EBITDA (Rs Mn) PAT (Rs Mn)
21%
18%
13%
9%
15%
18% 18%
21% 22%
16%
13% 11%
10% 13%
16% 15% 17%
19%
0%
5%
10%
15%
20%
25%
FY12 FY13 FY14 FY15 FY16 FY17 FY18E FY19E FY20E
RoE RoCE
Shankara Building Products Ltd. Absolute – ADD Relative – Benchmark 5% ATR in 20 Months
February 1, 2018 Analyst: Maulik Patel [email protected] (+91-8128694110) Page 5 of 13
Quarterly performance
Rs Mn 3QFY18 3QFY18E 2QFY18 3QFY17 % Change
Comments 3QFY18E 2QFY18 3QFY17
Net Sales 6,246 6,149 5,716 5,408 2% 9% 16%
Cost of RM 5,364 5,258 4,787 4,573 2% 12% 17%
Employee Benefit Expenses 161 146 149 123 10% 7% 31%
Other Expenses 313 316 368 349 -1% -15% -10%
Total Expenditures 5,838 5,720 5,305 5,046 2% 10% 16%
EBITDA 408 430 411 362 -5% -1% 13%
Depreciation 33 34 31 28 -2% 6% 16%
EBIT 375 396 380 333 -5% -1% 13%
Interest 110 101 118 131 9% -7% -16%
Other Income 2 0 2 1 - 30% 101%
PBT 268 295 264 204 -9% 1% 32%
Tax 91 100 91 67 -9% 1% 37%
Recurring PAT 177 195 173 137 -9% 2% 29%
Extraordinaries 0 0 0 0
Reported PAT 177 195 173 137 -9% 2% 29%
EPS (Rs) 7.7 8.5 7.6 6.0 -9% 2% 29%
EBITDA Margin 6.5% 7.0% 7.2% 6.7% -45 bps -66 bps -15 bps
EBIT Margin 6.0% 6.4% 6.6% 6.2% -43 bps -64 bps -16 bps
PBT Margin 4.3% 4.8% 4.6% 3.8% -51 bps -33 bps 52 bps
PAT Margin 2.8% 3.2% 3.0% 2.5% -34 bps -20 bps 30 bps
Tax Rate 34.0% 34.0% 34.4% 32.7% 3 bps -33 bps 132 bps
Retail Revenue 2,989 - 2,729 2,261 - 10% 32%
Retail EBIT 310 - 287 180 - 8% 72%
Channel & Enterprise Revenue 3,257 - 2,987 3,146 - 9% 4%
Channel & Enterprise EBIT 177 - 164 277 - 8% -36%
Shankara Building Products Ltd. Absolute – ADD Relative – Benchmark 5% ATR in 20 Months
February 1, 2018 Analyst: Maulik Patel [email protected] (+91-8128694110) Page 6 of 13
Earnings call takeaways
Acquisition update
In Q3FY18, Shankara acquired JP Sanitation, which operates three stores in
Bengaluru city and specialized in categories of plumbing, sanitary ware and flooring
tiles. Over 30 years of operations, it has built significant connect with home owners,
architects, builders and leading suppliers. Synergies to Shankara should flow in the
form of increasing revenues in home improvement categories with cross-selling of
products to customers.
Last quarter, Shankara took over retail chain operations of Vaigai Sanitation, and is
currently working on bringing down its cost levels and turning around operations. It
has also started cross-selling products to Vaigai Sanitation customers.
With increased presence, Shankara gets significant traction in dealing with larger
players in the form of discounts and a better product portfolio, differentiating it
from competition. It has also prompted players in other product categories to look at
Shankara for selling its products.
The company expects EBITDA margins of close to 10-15% from such business going
ahead. It is also looking at increasing its revenue share from ~10% of retail revenues
currently to ~30% going ahead.
JP Sanitation is expected to clock ~Rs 550mn-600mn in FY18 revenues with EBITDA
margins above 10%. Acquisition was done at Rs 150mn, which includes inventory of
Rs 80mn.
Vaigai Sanitation sales for Nov-Dec stood at Rs 90mn with EBITDA-level breakeven.
Omni channel presence
In 3QFY18, Shankara launched a new Omni-channel website, www.buildpro.store,
which will cater to demand in plumbing, baths & faucets, construction material,
electrical & appliances, kitchen and walls & flooring segments.
It will aid product discovery process in digital mode and complement display stocks
in physical stores. This in turn would enhance Shankara’s brand equity.
Only certain product categories will be supplied through the Omni channel currently,
but would be scaled up later and supplied on a pin-code basis.
Segment-wise performance
Retail
Revenues grew 32% yoy on lower GST rates, increased penetration levels and
improved sentiments.
Contribution of retail to total revenues stood at 47.9%.
SSSg stood at 37.3% for Q3FY18 and 20.8% for 9MFY18 on a weak Q3FY17 base due to
demonetization.
Avg. rental costs for stores on lease stood at Rs 70.6 per sq. ft/per month. As of
today, the company has 124 stores (excluding 3 stores of JP sanitation), of which 109
stores are on lease basis. In total, Shankara operated in 4.7lakh sq ft of retail stores
with an average store size of 3800 sq. ft.
Of the total stores, 39% of stores are in tier I, 25% in tier II and 36% in tier III cities.
The avg. ticket size per transaction stood at ~Rs 24,400.
The company upgraded 45 stores in 9MQFY18 (vs. 20 stores in 9MFY17) and added 6
stores (from acquisition) to its store count.
Of total retail sales, construction material sales constitute ~64%, inter-exterior ~20%,
new product categories ~11% and agricultural products ~5%.
Enterprise segment
Sales grew 5% yoy and contributed 32% to consolidated revenues.
Company plans to increase its revenue share in C&E business as it has better margins
as compared to channel business.
Channel segment
Sales were up by a marginal 1% yoy. In line with the company’s strategy to reduce
the segment’s revenue share, the channel segment now contributes 20% of consol
revenues.
Processing: 12 facilities worked at ~90% capacity utilization levels in 3QFY18.
Other highlights and guidance
Shankara had a weak October due to the festive season and a strong monsoon in
South India. Market stabilized to a great extent post new GST rates introduced from
mid-November, resulting in strong December sales.
Top-10 customers contributed 10% of revenues.
Management is looking at opening 15-20 stores every year. The company has already
achieved this number for FY18.
Shankara incurred ~Rs 300mn of capex for 9MFY18. It is looking at Rs 300mn-310mn
of capex for FY19, including for new store rollout (~Rs 50-60mn).
Debt levels stood at Rs 3.1bn as of 31 Dec’17 vs. Rs 2.86bn as on 31 Mar’17.
Demand that was held back in a hope of rates cuts has now returned. The GST effect
has been waning and demand has normalized.
Shankara Building Products Ltd. Absolute – ADD Relative – Benchmark 5% ATR in 20 Months
February 1, 2018 Analyst: Maulik Patel [email protected] (+91-8128694110) Page 7 of 13
Company Snapshot
How we differ from Consensus
- Equirus Consensus % Diff Comment
EPS FY18E 34.6 33.5 3 % Largely in-line with consensus
FY19E 45.5 43.7 4 %
Sales FY18E 24,601 24,542 0 %
FY19E 26,453 27,596 -4 %
PAT FY18E 791 760 4 %
FY19E 1,040 992 5 %
Key Investment Arguments:
Presence across value chain – from retailing, channel, and enterprise segments to
processing.
Retail business on a strong footing – expect 25-30% store-level ROCE
Overall financial profile to strengthen - 30% PAT CAGR and ~300bps RoE expansion likely
over FY17-FY20E
Key Assumptions:
FY17 FY18E FY19E FY20E
Processing Volume (In MT) 303,963 326,048 353,648 381,248
New Store Additions 10 23 19 18
Retail SSG 19% 13% 15% 18%
Channel Growth 0% -12% -20% -20%
Enterprise Growth 16% 5% 8% 8%
Risk to Our View
Volatility in steel prices, non-ability to diversify revenues from Steel to other products.
Key Triggers
Strong retail revenue growth
Improvement in store level margin and stable working capital
Reduction in legacy channel segment
Sensitivity to Key Variables % Change % Impact on EPS
SSG $10/MT 4 %
Production Volume 5 % 2 %
DCF Valuations & Assumptions
Rf Beta Ke Term. Growth Debt/IC in Term. Yr
7.3 % 1.0 13.3 % 4.0 % 4.1 %
- FY18E FY19E FY20-22E FY23-27E FY28-37E
Sales Growth 6 % 8 % 7 % 8 % 9 %
NOPAT Margin 4 % 5 % 5 % 6 % 6 %
IC Turnover 3.37 3.47 3.46 3.69 4.44
RoIC 15.5 % 16.7 % 18.1 % 19.8 % 23.7 %
Years of strong growth 1 2 5 10 20
Valuation as on date (Rs) 219 281 404 552 799
Valuation as of Sep'19 269 346 498 679 984
Based on DCF, assuming 20 years of 9% CAGR growth and 24% average ROIC, we derive
current fair value of Rs 799 and a Sep’19 fair value of Rs 984.
Company Description:
Shankara is one of the leading organized retailers of home improvement and building
products in India based on number of stores, operating under the trade name Shankara
Buildpro. Retail store contribution in revenue mix is 42% and is fastest growing segment
for Shankara. It also caters large end users, OEMs and contractors through its enterprise
segment. In channel segment, it caters retailers & dealers through branch network.
Comparable valuation Mkt Cap
Rs. Mn.
Price
Target
Target
Date
EPS P/E BPS P/B RoE Div Yield
Company Reco. CMP FY17A FY18E FY19E FY17A FY18E FY19E FY17A FY18E FY17A FY18E FY19E FY17A FY18E
Shankara ADD 1,720 33,610 1,859 30th Sep'19 26.4 34.6 45.5 65.2 49.7 37.8 172.3 8.5 18 % 18 % 21 % 0.0 % 0.2 %
APL Apollo NA 2,161 51,280 NA NA 62.0 74.7 98.3 34.8 28.9 22.0 305.3 6.0 23 % 22 % 24 % 0.6 % 0.6 %
DMART NA 1,195 745,906 NA NA 8.5 12.9 17.4 140.8 92.8 68.8 61.6 16.2 18 % 19 % 21 % 0.0 % 0.2 %
Shankara Building Products Ltd. Absolute – ADD Relative – Benchmark 5% ATR in 20 Months
February 1, 2018 Analyst: Maulik Patel [email protected] (+91-8128694110) Page 8 of 13
Consolidated Quarterly Earnings Forecast and Key Drivers Rs in Mn 1Q17A 2Q17A 3Q17A 4Q17A 1Q18A 2Q18A 3Q18A 4Q18E 1Q19E 2Q19E 3Q19E 4Q19E FY17A FY18E FY19E FY20E
Revenue 5,669 6,021 5,408 6,004 5,916 5,716 6,246 6,722 6,613 6,613 6,613 6,613 23,101 24,601 26,453 29,314 Raw Materials Consumed 4,876 5,266 4,573 5,078 5,072 4,787 5,364 5,811 5,621 5,621 5,621 5,621 19,794 21,034 22,485 24,771
Employee Cost 99 145 123 126 128 149 161 145 168 168 168 168 494 583 670 771
Other Exp 362 237 349 342 324 368 313 247 316 316 316 316 1,270 1,253 1,264 1,372
- - - - - - - - - - - - - - - - -
- - - - - - - - - - - - - - - - - EBITDA 331 374 362 457 392 411 408 520 508 508 508 508 1,544 1,731 2,033 2,401 Depreciation 25 31 28 29 29 31 33 36 36 36 36 36 114 129 144 155 EBIT 305 342 333 428 363 380 375 483 472 472 472 472 1,430 1,602 1,889 2,246 Interest 119 129 131 127 98 118 110 77 78 78 78 78 508 403 313 240 Other Income 3 1 1 2 1 2 2 0 0 0 0 0 3 5 0 0 PBT 190 214 204 302 266 264 268 407 394 394 394 394 925 1,204 1,576 2,005 Tax 60 79 67 111 93 91 91 138 134 134 134 134 322 414 536 682 PAT bef. MI & Assoc. 130 135 137 191 173 173 177 268 260 260 260 260 603 791 1,040 1,323 Minority Interest 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Profit from Assoc. 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Recurring PAT 130 135 137 191 173 173 177 268 260 260 260 260 603 791 1,040 1,323 Extraordinaries 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Reported PAT 130 135 137 191 173 173 177 268 260 260 260 260 603 791 1,040 1,323
EPS (Rs) 5.7 5.9 6.0 8.4 7.5 7.6 7.7 11.7 11.4 11.4 11.4 11.4 26.4 34.6 45.5 57.9
Key Drivers
Production Volume (In MT) - - - - - - - - - - - - 303,963 326,048 353,648 381,248 New Store Additions - - - - - - - - - - - - 16 23 25 27 SSG - - - - - - - - - - - - 19 % 13 % 15 % 18 % Retail Margin - - - - - - - - - - - - 10 % 11 % 11 % 11 % - - - - - - - - - - - - - - - - -
- - - - - - - - - - - - - - - - -
Sequential Growth (%)
Revenue -1 % - -10 % 11 % -1 % -3 % 9 % 8 % -2 % 0 % 0 % 0 % - - - - Raw Materials Consumed 0 % - -13 % 11 % 0 % -6 % 12 % 8 % -3 % 0 % 0 % 0 % - - - - EBITDA -20 % - -3 % 26 % -14 % 5 % -1 % 27 % -2 % 0 % 0 % 0 % - - - - EBIT -21 % - -3 % 28 % -15 % 5 % -1 % 29 % -2 % 0 % 0 % 0 % - - - - Recurring PAT -25 % - 1 % 39 % -10 % 0 % 2 % 52 % -3 % 0 % 0 % 0 % - - - -
EPS -25 % - 1 % 39 % -10 % 0 % 2 % 52 % -3 % 0 % 0 % 0 % - - - -
Yearly Growth (%)
Revenue - - - 5 % 4 % -5 % 16 % 12 % 12 % 16 % 6 % -2 % 13 % 6 % 8 % 11 % EBITDA - - - 10 % 18 % 10 % 13 % 14 % 30 % 24 % 24 % -2 % 29 % 12 % 17 % 18 % EBIT - - - 10 % 19 % 11 % 13 % 13 % 30 % 24 % 26 % -2 % 30 % 12 % 18 % 19 % Recurring PAT - - - 11 % 33 % 28 % 29 % 41 % 51 % 50 % 47 % -3 % 51 % 31 % 32 % 27 %
EPS - - - 11 % 33 % 28 % 29 % 41 % 51 % 50 % 47 % -3 % 42 % 31 % 32 % 27 %
Margin (%)
EBITDA 6 % 6 % 7 % 8 % 7 % 7 % 7 % 8 % 8 % 8 % 8 % 8 % 7 % 7 % 8 % 8 % EBIT 5 % 6 % 6 % 7 % 6 % 7 % 6 % 7 % 7 % 7 % 7 % 7 % 6 % 7 % 7 % 8 % PBT 3 % 4 % 4 % 5 % 4 % 5 % 4 % 6 % 6 % 6 % 6 % 6 % 4 % 5 % 6 % 7 %
PAT 2 % 2 % 3 % 3 % 3 % 3 % 3 % 4 % 4 % 4 % 4 % 4 % 3 % 3 % 4 % 5 %
Shankara Building Products Ltd. Absolute – ADD Relative – Benchmark 5% ATR in 20 Months
February 1, 2018 Analyst: Maulik Patel [email protected] (+91-8128694110) Page 9 of 13
Consolidated Financials
P&L (Rs Mn) FY17A FY18E FY19E FY20E
Balance Sheet (Rs Mn) FY17A FY18E FY19E FY20E
Cash Flow (Rs Mn) FY17A FY18E FY19E FY20E
Revenue 23,101 24,601 26,453 29,314 Equity Capital 229 229 229 229 PBT 925 1,204 1,576 2,005
Op. Expenditure 21,558 22,870 24,419 26,914 Reserve 3,708 4,389 5,211 6,260 Depreciation 114 129 144 155
EBITDA 1,544 1,731 2,033 2,401 Networth 3,937 4,618 5,439 6,488 Others 501 0 0 0
Depreciation 114 129 144 155 Long Term Debt 2,236 1,736 1,236 836 Taxes Paid 236 414 536 682
EBIT 1,430 1,602 1,889 2,246 Def Tax Liability 170 944 944 944 Change in WC -239 -1,193 -271 -413
Interest Expense 508 403 313 240 Minority Interest 0 0 0 0 Operating C/F 1,066 -273 914 1,066
Other Income 3 5 0 0 Account Payables 2,610 2,766 2,957 3,258 Capex -372 -548 -250 -250
PBT 925 1,204 1,576 2,005 Other Curr Liabi 528 472 507 562 Change in Invest 0 0 0 0
Tax 322 414 536 682 Total Liabilities & Equity 9,481 10,536 11,084 12,088 Others 2 0 0 0
PAT bef. MI & Assoc. 603 791 1,040 1,323 Net Fixed Assets 2,450 2,671 2,776 2,871 Investing C/F -370 -548 -250 -250
Minority Interest 0 0 0 0 Capital WIP 0 0 0 0 Change in Debt 9 -500 -500 -400
Profit from Assoc. 0 0 0 0 Others 140 339 339 339 Change in Equity 423 0 0 0
Recurring PAT 603 791 1,040 1,323
Inventory 2,795 3,033 3,406 3,855 Others -1,120 665 -219 -274
Extraordinaires 0 0 0 0 Account Receivables 3,123 3,235 3,334 3,614 Financing C/F -688 165 -719 -674
Reported PAT 603 791 1,040 1,323 Other Current Assets 311 1,253 1,278 1,317 Net change in cash 8 -656 -56 141
FDEPS (Rs) 26.4 34.6 45.5 57.9 Cash 662 6 -50 92 RoE (%) 18 % 18 % 21 % 22 %
DPS (Rs) 0.0 4.1 8.2 10.3 Total Assets 9,481 10,536 11,083 12,088
RoIC (%) 16 % 15 % 17 % 19 %
CEPS (Rs) 31.7 40.3 51.8 64.7 Non-cash Working Capital 3,091 4,283 4,554 4,967
Core RoIC (%) 16 % 16 % 17 % 19 %
FCFPS (Rs) 45.4 -24.4 38.1 42.6 Cash Conv Cycle 48.8 63.5 62.8 61.8 Div Payout (%) 5 % 14 % 21 % 21 %
BVPS (Rs) 172.3 202.1 238.0 283.9 WC Turnover 7.5 5.7 5.8 5.9 P/E 65.2 49.7 37.8 29.7
EBITDAM (%) 7 % 7 % 8 % 8 % FA Turnover 9.4 9.2 9.5 10.2 P/B 10.0 8.5 7.2 6.1
PATM (%) 3 % 3 % 4 % 5 % Net D/E 0.4 0.4 0.2 0.1 P/FCFF 37.9 -70.6 45.2 40.3
Tax Rate (%) 35 % 34 % 34 % 34 % Revenue/Capital Employed 4.3 4.5 4.6 4.3 EV/EBITDA 22.9 21.0 17.6 14.7
Sales Growth (%) 13 % 6 % 8 % 11 %
Capital Employed/Equity 2.2 2.0 1.7 1.6
EV/Sales 1.5 1.5 1.4 1.2
FDEPS Growth (%) 42 % 31 % 32 % 27 %
Dividend Yield (%) 0.0 % 0.2 % 0.5 % 0.6 %
TTM P/E vs. 2 yr forward EPS growth
TTM EV/EBITDA vs. 2 yr forward EBITDA growth
TTM P/B vs. 2 yr forward RoE
10x
20x
40x
60x
80x
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
0
500
1000
1500
2000
2500
3000
3500
4000
Mar
/16
May
/16
Jul/
16
Sep/
16
Nov/
16
Jan/
17
Mar
/17
May
/17
Jul/
17
Sep/
17
Nov/
17
Jan/
18
Mar
/18
May
/18
Jul/
18
Sep/
18
Nov/
18
Jan/
19
Mar
/19
EPS Growth
-20%
-10%
0%
10%
20%
30%
40%
50%
60%
70%
80%
-
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
90,000
100,000
Mar
/16
May
/16
Jul/
16
Sep/
16
Nov/
16
Jan/
17
Mar
/17
May
/17
Jul/
17
Sep/
17
Nov/
17
Jan/
18
Mar
/18
May
/18
Jul/
18
Sep/
18
Nov/
18
Jan/
19
Mar
/19
4x
11x
18x
25x
33x
EBITDA Growth
1x0%
5%
10%
15%
20%
25%
30%
35%
40%
-
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
Mar
/16
May
/16
Jul/
16
Sep/
16
Nov/
16
Jan/
17
Mar
/17
May
/17
Jul/
17
Sep/
17
Nov/
17
Jan/
18
Mar
/18
May
/18
Jul/
18
Sep/
18
Nov/
18
Jan/
19
Mar
/19
RoE
3x
6x
9x
12x
Shankara Building Products Ltd. Absolute – ADD Relative – Benchmark 5% ATR in 20 Months
February 1, 2018 Analyst: Maulik Patel [email protected] (+91-8128694110) Page 10 of 13
Historical Consolidated Financials
P&L (Rs Mn) FY14A FY15A FY16A FY17A
Balance Sheet (Rs Mn) FY14A FY15A FY16A FY17A
Cash Flow (Rs Mn) FY14A FY15A FY16A FY17A
Revenue 19,271 19,788 20,359 23,101 Equity Capital 219 219 219 229 PBT 420 346 647 925
Op. Expenditure 18,385 18,893 19,163 21,558 Reserve 2,116 2,316 2,692 3,708 Depreciation 58 88 95 114
EBITDA 886 896 1,196 1,544 Networth 2,335 2,535 2,911 3,937 Others 411 470 456 501
Depreciation 58 88 95 114 Long Term Debt 2,837 2,932 2,227 2,236 Taxes Paid 127 67 120 236
EBIT 828 807 1,101 1,430 Def Tax Liability 85 105 137 170 Change in WC -119 -43 517 -239
Interest Expense 416 470 460 508 Minority Interest 0 0 0 0 Operating C/F 643 795 1,595 1,066
Other Income 8 8 7 3 Account Payables 1,211 1,381 2,338 2,610 Capex -293 -396 -381 -372
PBT 420 346 647 925 Other Curr Liabi 299 302 378 528 Change in Invest -105 0 0 0
Tax 134 119 240 322 Total Liabilities & Equity 6,766 7,255 7,992 9,481 Others 2 0 3 2
PAT bef. MI & Assoc. 286 226 407 603 Net Fixed Assets 1,602 1,907 2,193 2,450 Investing C/F -396 -395 -378 -370
Minority Interest 0 0 0 0 Capital WIP 0 0 0 0 Change in Debt 160 93 -707 9
Profit from Assoc. 0 0 0 0 Others 150 140 140 140 Change in Equity 0 0 0 423
Recurring PAT 286 226 407 603 Inventory 2,212 2,321 2,559 2,795 Others -416 -496 -509 -1,120
Extraordinaires 0 0 0 0 Account Receivables 2,497 2,598 2,810 3,123 Financing C/F -256 -403 -1,216 -688
Reported PAT 286 226 407 603 Other Current Assets 279 265 266 311 Net change in cash -9 -4 1 8
EPS (Rs) 13.1 10.3 18.6 26.4 Cash 28 24 24 662
RoE (%) 13 % 9 % 15 % 18 %
DPS (Rs) 0.0 0.0 0.0 0.0
Total Assets 6,766 7,254 7,992 9,481
RoIC (%) 11 % 10 % 13 % 16 %
CEPS (Rs) 15.7 14.4 23.0 31.7 Non-cash Working Capital 3,477 3,501 2,919 3,091 Core RoIC (%) 11 % 10 % 13 % 16 %
FCFPS (Rs) 24.3 32.3 68.9 45.4 Cash Conv Cycle 65.9 64.6 52.3 48.8 Div Payout (%) 8 % 10 % 8 % 5 %
BVPS (Rs) 106.6 115.9 133.1 172.3 WC Turnover 5.5 5.7 7.0 7.5
P/E 131.6 166.2 92.5 65.2
EBITDAM (%) 5 % 5 % 6 % 7 % FA Turnover 12.0 10.4 9.3 9.4 P/B 16.1 14.8 12.9 10.0
PATM (%) 1 % 1 % 2 % 3 % Net D/E 1.2 1.1 0.8 0.4 P/FCFF 70.8 53.2 25.0 37.9
Tax Rate (%) 32 % 35 % 37 % 35 % Revenue/Capital Employed 6.5 4.7 4.0 4.3 EV/EBITDA 41.3 41.0 30.2 22.9
Sales growth (%) 9 % 3 % 3 % 13 %
Capital Employed/Equity 2.0 2.4 2.3 2.2
EV/Sales 1.9 1.9 1.8 1.5
FDEPS growth (%) -13 % -21 % 80 % 42 %
Dividend Yield (%) 0.0 % 0.0 % 0.0 % 0.0 %
Shankara Building Products Ltd. Absolute – ADD Relative – Benchmark 5% ATR in 20 Months
February 1, 2018 Analyst: Maulik Patel [email protected] (+91-8128694110) Page 11 of 13
Equirus Securities
Research Analysts Sector/Industry Email
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Abhishek Shindadkar IT Services [email protected] 91-22-43320643 VishadTurakhia [email protected] 91-22-43320633
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Rating & Coverage Definitions: Absolute Rating • LONG : Over the investment horizon, ATR >= Ke for companies with Free Float market cap > Rs 5 billion and ATR >= 20% for rest of the companies • ADD: ATR >= 5% but less than Ke over investment horizon • REDUCE: ATR >= negative 10% but <5% over investment horizon • SHORT: ATR < negative 10% over investment horizon Relative Rating • OVERWEIGHT: Likely to outperform the benchmark by at least 5% over investment horizon • BENCHMARK: likely to perform in line with the benchmark • UNDERWEIGHT: likely to under-perform the benchmark by at least 5% over investment horizon Investment Horizon Investment Horizon is set at a minimum 3 months to maximum 18 months with target date falling on last day of a calendar quarter. Lite vs. Regular Coverage vs. Spot Coverage We aim to keep our rating and estimates updated at least once a quarter for Regular Coverage stocks. Generally, we would have access to the company and we would maintain detailed financial model for Regular coverage companies. We intend to publish updates on Lite coverage stocks only an opportunistic basis and subject to our ability to contact the management. Our rating and estimates for Lite coverage stocks may not be current. Spot coverage is meant for one-off coverage of a specific company and in such cases, earnings forecast and target price are optional. Spot coverage is meant to stimulate discussion rather than provide a research opinion.
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Shankara Building Products Ltd. Absolute – ADD Relative – Benchmark 5% ATR in 20 Months
February 1, 2018 Analyst: Maulik Patel [email protected] (+91-8128694110) Page 12 of 13
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Shankara Building Products Ltd. Absolute – ADD Relative – Benchmark 5% ATR in 20 Months
February 1, 2018 Analyst: Maulik Patel [email protected] (+91-8128694110) Page 13 of 13
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Disclosure of Interest statement for the subject Company Yes/No If Yes, nature of such interest
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