Prabhudas Lilladher recommended accumulate rating on S Chand and Company with a target price of Rs 57 in its research report dated July 01, 2020.
Prabhudas Lilladher's research report on S Chand and Company
S Chand’s performance was disappointing in a seasonally strong quarter as COVID-19 led to a revenue loss/spillover of Rs1.6-1.8bn. While cost rationalization efforts resulted in savings of Rs792mn in FY20; OCF generation at Rs486mn was below expectations of Rs1.2bn as lockdown impacted collection efforts and led to inventory pile up. Given the uncertain timeline regarding start of the upcoming academic year, full recovery of revenue spillover from FY20 appears difficult. As a result, we have cut our revenue/PAT estimates for FY21 by 22%/38% and for FY22 by 14%/27% respectively (NEP would lay foundation for strong growth in FY22 and hence quantum of cut is lower). While there are near term growth challenges 1) clearly outlined cost reduction program (~10-20% cost rationalization expected in FY21) 2) opportunity from digital (9% contribution in FY20 to rise to 20-25% in 3 years) 3) healthy BS (debt of Rs2.1bn; aiming to be debt free in 3 years) and 4) attractive valuations makes S Chand an attractive bet.
Outlook
We thus maintain our ACCUMULATE rating with a TP of Rs57 (earlier Rs67) effectively valuing the stock at 3.5x FY22 EPS.
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