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Research
Mcleod Russel India Limited - On track for good year - Antique Stock Broking
Posted On : 2012-02-02 11:58:30( TIMEZONE : IST )
Results highlights
Higher despatches, robust prices drive revenues
Mcleod Russel India Ltd. (MRIL) registered revenue growth of 7% on the back of 5% growth in despatches to 25.6m kgs and 3% improvement in realisations to INR158/kg. As a result, revenues rose 7% to INR4bn, marginally above our estimates of INR3.8bn. Volumes and prices were higher YoY due to lower output on the back of inclement weather in north eastern India. On the exports front, MRIL's international sales rose ~17% YoY to INR163m as international stocks, especially in tea producing countries like Kenya and other African countries, ran low as adverse climatic conditions resulted in lower production.
Consumption of bought leaf, power costs play spoilsport for EBIDTA and PAT
Due to the increase in per kg prices of bought leaf (~52% YoY) and power & fuel costs (~8% YoY), EBIDTA fell 9% YoY to INR1.3bn. Additionally, the provision of INR40m on account of M-to-M losses on forward booking of forex for 4QFY12 exports resulted in PAT falling by 14% YoY to INR1.2bn in the quarter.
Options being explored for inorganic growth in Africa
MRIL has announced that it will bidding for two tea estates that are being put up for sale in Rwanda by the local government. While the company expects to pay 2x Sales/ 5x EBIDTA for the acquisition, the management did not disclose the expected bid amount due to competitive nature of the bidding process.
Valuation and outlook
At the CMP of INR188, the stock is trading at a PE of 8.3x and EV/EBITDA of 5.8x discounting its FY13e earnings. With tea prices and demand maintaining their current trends, the industry is in a structurally upward trend, given the static global output and poor availability of quality teas for blending. Our valuations provide us a target price of INR266 after factoring in improvements of 8% volume growth, 4% realisation growth and USD/ INR at INR45.1. This reflects an upside of 42% from the current levels, and we maintain our BUY recommendation.
