In the past one month, the stock of the home improvement products maker tanked 43% after the company posted 47% year on year (y-o-y) decline in its net profit at Rs 91 million in September quarter (Q2FY19), due to higher operational costs. Total income grew 12.6% at Rs 5,716 million on y-o-y basis. Floods and heavy rains, especially in Kerala and South Karnataka, have impacted the performance.
Ebitda (earnings before interest, tax, depreciation and amortization) margin was down 240 basis points (bps) to 4.8% from 7.2% in the year-ago quarter. The margin contraction was on account of increase in raw material costs and a sharp drop in channel and enterprise division EBIT margins.
“Processing margins have been under pressure on account of increase in raw material prices and relatively weaker pricing power to pass on the same. Management expects pressure on processing margins to continue for the next couple of quarters,” analysts at IDFC Securities said in a company update.
Management highlighted that the pace of store addition in the near term is likely to moderate as compared to earlier years. With store upgradations largely done, the company will now focus on stabilizing the overall processes and operations and drive more throughput/efficiencies in the existing network, it added.
Analysts at ICICI Securities expect topline growth at 15.7% CAGR to Rs 341 million in FY18-20E. However, with margin pressure on Shankara Building and the management commentary on significant improvement over the next few quarters, we lower our EBITDA margin assumption resulting in sharp earnings downgrades by 42.8%.
“We now expect its earnings to grow at a subdued pace of 5.2% CAGR to Rs 817 million in FY18-20E,” the brokerage firm said in result update.
The stock plunged 73% from its record high level of Rs 2,365 touched on December 5, 2017, on the BSE. It was trading close to its record low level of Rs 545 touched on listing date, April 5, 2017, in the intra-day trade.
The Bengaluru-based company, which is an organised retailer of home improvement and building products in India, raised Rs 3.50 billion through an initial public offer (IPO) by issuing equity shares at Rs 460 per share.
The trading volumes on the counter more-than-doubled with a combined 800,413 equity shares changed hands on the BSE and NSE. There were pending sell orders for 343,958 shares on both the exchanges at 12:39 pm.