While the structural growth opportunity in the feminine hygiene segment (~70% of sales) remains very promising, valuations of 52.1x FY21E EPS do not leave much room for an upside. Maintain Neutral.
Net sales grew 21.5% year-on-year to Rs 640 crore (our estimate: Rs 600 crore) in Q4FY19 (FY ended June) — the fourth straight quarter of extremely healthy sales growth. Even adjusted for the GST effect on sanitary napkins (which optically inflates sales but has an adverse effect on operating costs), comparable growth stands healthy at 12% y-o-y for Q4FY19 and 14% y-o-y for FY19. Ebitda, however, was down 22.8% y-o-y to `64.8 crore (our estimate: Rs 120 crore). Adjusted PAT increased 36.5% y-o-y to `60.8 crore (our estimate: Rs 79.5crore), led by tax write-back.
Gross margin contracted 530 bps y-o-y to 59.3% (our estimate: 57.4%). Ebitda margin, too, shrank 580 bps y-o-y to 10.2% (our estimate: 20.2%). Ad spends were down 210 bps y-o-y (off an extremely high base of Q4FY18), but other expenses were up by 330 bps y-o-y. The sharp increase in other expenses (for which no explanations were provided) is surprising, given that it too has come off a very high base (+630 bps y-o-y in Q4FY18).
FY19 performance: Net sales were up by 20% to Rs 2,950 crore. Ebitda declined 3% to Rs 610 crore, while adjusted PAT grew 11.9% to `420 crore. Balance sheet for the year: A three-day increase in average inventory and a one-day increase in average trade receivables were more than offset by an eight-day rise in average creditors, pushing net working capital further into the negative. Moreover, there is no apparent increase in loans.
Margins have remained volatile over the past few years, but sales growth has revived significantly due to distribution expansion and sharp ad spends in the preceding quarters. While the structural growth opportunity in the feminine hygiene segment (~70% of sales) remains very promising, valuations of 52.1x FY21E EPS do not leave much room for an upside. Maintain Neutral.