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JM Financial
SH Kelkar (Buy)
CMP: ₹255
Target: ₹300
SH Kelkar has reported another quarter of weak operating performance — third consecutive quarter where earnings have missed our estimates. Revenue trajectory was earlier disrupted by demonetisation; implementation of GST is now hampering the same coupled with some phasing of revenues in Flavours segment. This has raised investor concerns on whether the revenue impact is temporary in nature or could be more prolonged. While this could remain a near-term dampener on the share price performance, we remain constructive of the company’s ability to navigate these challenges and emerge in a more resilient form.
Our confidence stems from its historical performance where it has continued to gain market share despite competing with global MNCs with a much stronger clientele. We find SH Kelkar as one of the best proxies to consumer companies and, with recent correction, valuations are also now more in the reasonable zone (30x NTM earnings versus 45x for our aggregate consumer universe ex-ITC). We maintain our positive bias on the stock, though near-term performance could remain impacted by revenue growth challenges.
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