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MOTILALOSWAL
SH Kelkar (Buy)
CMP: ₹291.50
Target: ₹338
SH Kelkar (SHKL) is one of India’s largest fragrance & flavour (F&F) companies with a market share of about 14 per cent as of 2016.
In October 2015, it raised ₹210 crore via an IPO to repay its own debt (₹126 crore) and subsidiary company debt (₹32 crore). The company derived 63 per cent of its FY16 revenues from India and 37 per cent from exports. We expect SHKL to surpass industry revenue growth due to about 40 per cent wallet share in fast-growing domestic FMCG companies and entry into new categories. It is also expected to scale up its EBITDA margins to match with global peers (average 23 per cent margins in CY15) on the back of corrective measures in exports and ingredients business.
We expect SHKL to record 16 per cent revenue CAGR, 33 per cent PAT CAGR over FY16–19E. This will lead to RoCE expanding from 17 per cent in FY16 to 28 per cent in FY19 along with strong FCF CAGR of 21 per cent with a net cash balance sheet. The stock is currently trading at a PE of 22x FY19EPS which is at premium of about 30 per cent to MNC peers and about 20 per cent discount to leading front-end domestic FMCG companies in India. We ascribe a similar discount to target PE of domestic FMCG companies and arrive at a multiple of 26x on FY19E EPS for SHKL.
Business Line is not responsible for the recommendations sourced from third party brokerages. Reports may be sent to: blmarketwatch@gmail.com
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