Goodluck India - 3QFY17 Result Update - Subdued Quarter; Better Times Expected as Input Prices Stabilize - Reliance Securities

Goodluck India (GIL) has reported a subdued performance in 3QFY17. Its revenues grew by 17.6% YoY and 7.9% QoQ to Rs3.08bn, while EBITDA fell by 16.1% YoY and 13.8% QoQ to Rs197mn (owing to steep rise in key input prices i.e. steel and zinc) and margins contracted by 256bps YoY and 161bps QoQ. Notably, GIL could not pass on the rise in key input prices i.e steel and zinc, as the prices of these input increased in every month of the quarter and lower demand due to demonetization. Further, with capitalization of new assets, interest and depreciation cost grew by 33% YoY and 11.5% YoY to Rs124mn and Rs45mn, respectively (flat on sequential comparison), owing to which PAT declined by 81% YoY to just Rs15mn.

Revenues of Pipe / Steel / Structures grew by 18.8% YoY and 5.7% QoQ to Rs2.7bn, while Engineered Goods revenue grew by 10.3% YoY and 25.4% QoQ to Rs401mn. Despite this subdued performance, we continue to believe that GIL is well-poised to cash in imminent opportunities in key areas like infrastructure, railways and solar power sectors. We believe that focus on value-added products would improve GIL's profitability, while enhanced utilization would boost revenue. Further, stability in the prices of key inputs would aid margin growth.We reiterate our BUY recommendation on the stock with a downwardly revised Target Price of Rs133.

Spiralling Input Cost Drags Operating Margin

GIL's EBITDA fell 16.1% YoY and 13.8% QoQ as the prices of key inputs (as a percentage of sales) increased to 74.7% from 70.7% in 3QFY16 and 71% in 2QFY17. On an absolute basis, raw material prices increased by 24.2% YoY and 13.5% QoQ to Rs2.3bn. largely due to a sharp Rs4,500/tonne QoQ and ~Rs9,000/tonne YoY rise in steel prices. However, GIL sees no near-term hike in steel prices post ~Rs3,000/tonne hike in the first week of Jan'17, as the hike is yet to be entirety absorbed by the market. This will provide required headroom to pass on the same, which would aid margin growth from 4QFY17E onwards.

Outlook & Valuation

Assuming the washed-out performance won't be extrapolated further, we believe that stability in the prices of key inputs would aid GIL to improve its margin profile, going forward. We expect GIL would cash in imminent opportunities in Engineering / Structure & Precision Tubes segments led by increased thrust of government towards infrastructure development. We reiterate our BUY recommendation on the stock with a downwardly revised Target Price of Rs133 (from Rs141 earlier).

Shares of GOODLUCK STEEL TUBES LTD. was last trading in BSE at Rs.82.6 as compared to the previous close of Rs. 80.7. The total number of shares traded during the day was 15381 in over 184 trades.

The stock hit an intraday high of Rs. 83.8 and intraday low of 81.55. The net turnover during the day was Rs. 1275361.

Source : Equity Bulls

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