Challenging quarter in tough demand environment
• Butterfly Gandhimathi Appliances’ (BGAL) Q1FY15 revenues declined
48.3% YoY to | 107.0 crore due to absence of government sales. The
branded sales revenues, however, grew 19% YoY
• Despite higher ad spends, the company has maintained the
operating margin 7.5% (down 30 bps YoY)
• Owing to a weaker topline and high fixed costs, PAT dipped from
| 8.9 crore in Q1FY14 to | 0.2 crore in Q1FY15
Revenue growth to continue…
BGAL has been in the kitchen appliances segment for about four decades.
The company has come out of BIFR and managed to record healthy
revenue growth led by (a) capacity expansion, (b) government orders, (c)
entry into new markets and (d) addition of new SKUs. We expect the last
leg of capacity addition, entry into newer markets and the recent
acquisition to boost sales. A fresh round of bidding for government
orders is likely to happen in August/September 2014. We have not
factored in any government orders. We expect revenues to increase from
| 764.2 crore in FY14 to | 899.6 crore in FY16E. Though Q1FY15 has been
relatively muted, the company is confident of achieving the growth target.
Operating margin to remain subdued in short-term
After witnessing an operating margin expansion over the last few years,
the operating margin is likely to remain subdued owing to the company’s
expansion into the non-south region. BGAL needs to extend higher
discounts to dealers to push their products. Also, the company has raised
its ad spends, thereby pressurising the operating margin. We expect the
operating margin to touch 9.5% in FY16E. Over the medium term, the
management aims to touch the operating margin levels of its peers.
PAT to grow at CAGR of 42.5% during FY14-16E
Revenue growth is likely to remain relatively low owing to the weak
consumer sentiment and the exclusion of government orders. Owing to
an improvement in operating margin, PAT growth is likely to be healthier.
We expect PAT to grow at a CAGR of 42.5% to | 45.5 crore by FY16E.
Higher fixed costs lead to earnings downgrade
Despite a relatively weak Q1FY15, we have maintained our revenue and
operating margin estimates for FY15E and FY16E. However, considering
that fixed costs came in higher than our expectations, we have lowered
our PAT estimates for FY15E/FY16E by 29.6%/4.4%, respectively.
Hopeful of better times ahead; maintain BUY with revised target of | 355
BGAL is trading at a discount to its peers (TTK Prestige and Hawkins
Cookers). We believe the company is a re-rating candidate considering
the strong turnaround that it has made and also the growth potential it
has. Our earnings estimates have been revised downwards owing to
higher fixed costs. However, we remain positive about the long-term
prospects of the company. The company’s expansion in non-south
regions is also picking up well and the acquisition of the LLM product
portfolio would further boost revenues. We maintain BUY on Butterfly
Gandhimathi with a revised target prices of | 355 (based on 14.0x FY16E
EPS of | 25.5).
On a cautionary note, considering the various impediments faced by
small cap stocks, we believe this should be looked at as a medium to long
term investment, which has inherent risks of higher price volatility.
��
• Butterfly Gandhimathi Appliances’ (BGAL) Q1FY15 revenues declined
48.3% YoY to | 107.0 crore due to absence of government sales. The
branded sales revenues, however, grew 19% YoY
• Despite higher ad spends, the company has maintained the
operating margin 7.5% (down 30 bps YoY)
• Owing to a weaker topline and high fixed costs, PAT dipped from
| 8.9 crore in Q1FY14 to | 0.2 crore in Q1FY15
Revenue growth to continue…
BGAL has been in the kitchen appliances segment for about four decades.
The company has come out of BIFR and managed to record healthy
revenue growth led by (a) capacity expansion, (b) government orders, (c)
entry into new markets and (d) addition of new SKUs. We expect the last
leg of capacity addition, entry into newer markets and the recent
acquisition to boost sales. A fresh round of bidding for government
orders is likely to happen in August/September 2014. We have not
factored in any government orders. We expect revenues to increase from
| 764.2 crore in FY14 to | 899.6 crore in FY16E. Though Q1FY15 has been
relatively muted, the company is confident of achieving the growth target.
Operating margin to remain subdued in short-term
After witnessing an operating margin expansion over the last few years,
the operating margin is likely to remain subdued owing to the company’s
expansion into the non-south region. BGAL needs to extend higher
discounts to dealers to push their products. Also, the company has raised
its ad spends, thereby pressurising the operating margin. We expect the
operating margin to touch 9.5% in FY16E. Over the medium term, the
management aims to touch the operating margin levels of its peers.
PAT to grow at CAGR of 42.5% during FY14-16E
Revenue growth is likely to remain relatively low owing to the weak
consumer sentiment and the exclusion of government orders. Owing to
an improvement in operating margin, PAT growth is likely to be healthier.
We expect PAT to grow at a CAGR of 42.5% to | 45.5 crore by FY16E.
Higher fixed costs lead to earnings downgrade
Despite a relatively weak Q1FY15, we have maintained our revenue and
operating margin estimates for FY15E and FY16E. However, considering
that fixed costs came in higher than our expectations, we have lowered
our PAT estimates for FY15E/FY16E by 29.6%/4.4%, respectively.
Hopeful of better times ahead; maintain BUY with revised target of | 355
BGAL is trading at a discount to its peers (TTK Prestige and Hawkins
Cookers). We believe the company is a re-rating candidate considering
the strong turnaround that it has made and also the growth potential it
has. Our earnings estimates have been revised downwards owing to
higher fixed costs. However, we remain positive about the long-term
prospects of the company. The company’s expansion in non-south
regions is also picking up well and the acquisition of the LLM product
portfolio would further boost revenues. We maintain BUY on Butterfly
Gandhimathi with a revised target prices of | 355 (based on 14.0x FY16E
EPS of | 25.5).
On a cautionary note, considering the various impediments faced by
small cap stocks, we believe this should be looked at as a medium to long
term investment, which has inherent risks of higher price volatility.
link:
http://content.icicidirect.com/mailimages/IDirect_Butterfly_Q1FY15.pdf
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