Venky's 4QFY18 EBITDA came in modestly ahead of estimates on positive topline surprise, while PAT missed estimates on higher effective tax for the quarter. The quarter confirms our fears of contraction in Venky's margins going into FY19. However, the ~20% decline in the stock since our last update (Apr 11, 2018) reduces the risks involved at CMP, due to which we upgrade the stock one notch to REDUCE (SELL earlier). Our (May 2019) target price is tweaked marginally to Rs 3750 (Rs 3700 earlier).
- Venky's reported 19.8% y/y growth in sales, with stronger growth in the oilseeds and animal health products segments. Poultry revenues registered 14% y/y growth in the quarter. Reported revenues came in ahead of estimates, largely on positive surprise in non-poultry segments.
- Reported EBITDA was 3% ahead of our estimates. However, the company registered Rs 106mn tax adjustment for prior periods. Due to this, reported PAT came in lower than our estimate.
Valuation & outlook
- The quarter's financials show, in line with our expectations, rising pressure on gross margin of the company. We note that through the larger part of FY18, Venky's has benefited from higher prices of broilers/ day-old-chicks, as also lower prices of soya/ corn, which are the primary raw materials for the company.
- In the absence of either: a/ positive earnings surprises, or b/ meaningful changes in perception of Venkys as a potential long-term branded/ packaged play on India's chicken story, we believe the valuation of Venky's shall be contained to 20-22X FY20E PER. We tweak our price target modestly to Rs 3750 (c. 21X FY20E PER). The stock has declined 20% since our last update (April 11), improving the risk-reward on the stock. We upgrade Venky's one notch to REDUCE (SELL earlier).
Shares of VENKY'S (INDIA) LTD. was last trading in BSE at Rs.3584 as compared to the previous close of Rs. 3711.4. The total number of shares traded during the day was 13173 in over 1919 trades.
The stock hit an intraday high of Rs. 3748 and intraday low of 3571.65. The net turnover during the day was Rs. 47743340.