GST-related marketplace disruption meant a weak Q2CY17 and the high salience of the June quarter to annual financials means, CY2017E will likely be a weak year and any assessment of underlying business fundamentals now has to wait for the next summer season, i.e. Q2CY18. We remain positive on improved growth performance in the coming years. Valuations are undemanding despite modest estimate cuts. ‘Buy’ stays with a revised TP of Rs 580/share, from Rs 550, at 12X June 2019E EV/EBITDA.
At a consolidated level, VBL reported 2% y-o-y decline in net revenues, 3% growth in EBITDA, 21% growth in recurring PAT, aided by reduced net finance costs on the back of IPO proceeds, and 10% decline in EPS to Rs 13.5/share.
Standalone performance was weaker with net sales declining 4%, EBITDA down 1% and EPS down 17% y-o-y. Standalone essentially India business performance was impacted by two factors – GST-related channel destocking in June and early onset of monsoon in some of the states VBL operates in. EBITDA margin performance was commendable (+100 bps in the standalone business) and was aided by logistics and other cost savings driven by the new plant in the state of Uttar Pradesh. The company spent Rs 3.25 billion capex on this new plant. First halves of calendar years typically account for around 60-65% of the company’s annual revenues and 70-80% of the annual EBITDA. H1CY17 EBITDA growth of just over 5% y-o-y thereby sets a narrow range for the likely CY2017E EBITDA growth; we peg the same at 6.2% in our revised forecasts.
While we remain positive on an improvement in growth trajectory ahead, as reflected in the ~12% 5-year EBITDA CAGR we build in for CY2017-22E, we do note that the next validation of our growth expectations would have to wait for another year now.
We have revised our CY2017-19E EBITDA and EPS forecasts down by 1-3%. Our CY2018E EBITDA forecast now stands at Rs 9.5 billion. Our revised target price stands at Rs 580/share, valuing the company at 12X June 2019E EV/EBITDA.