Result Update: Asian Granito India Ltd - REDUCE - TP Rs.185 - Kotak

Underperformance continues for another quarter in terms of realization, margins and profitability. Company expects volume growth to start witnessing improvement from Q3FY19 onwards. Sequentially, realizations have started witnessing improvement but acceptability of price hikes is likely to be watched out closely going forward owing to political uncertainty and lack of compliance towards e-way bill implementation.

Key highlights

Asian Granito revenue for Q2FY19 was in line with our estimates but it was largely led by sharp jump in outsourced tile volume by 27.6% YoY. Overall volumes were up by 7.1% YoY as transportation strike in July and Kerala floods impacted volume growth. Operating margins declined sharply sequentially and on yearly basis to 8.6% due to lower realization, higher gas prices and higher proportion of outsourced tiles. Net profit performance stood lower than our expectations and was impacted by fall in margins.

Valuation and recommendation

Stock is currently trading at valuations of 21.5x and 15.7x on FY19 and FY20 estimates respectively. Post revising our estimates, we arrive at a revised price target of Rs 185 based on 16x FY20 estimated earnings (Rs 255 earlier based on 16x FY20 estimates). We downgrade the stock to REDUCE from ACCUMULATE earlier as we believe that challenges on demand growth, gas prices and any potential imposition of anti-dumping duty by exporting nations may weigh on the company's volume and realizations going forward.

Shares of ASIAN GRANITO INDIA LTD. was last trading in BSE at Rs.180.75 as compared to the previous close of Rs. 183.2. The total number of shares traded during the day was 1993 in over 110 trades.

The stock hit an intraday high of Rs. 184 and intraday low of 178.15. The net turnover during the day was Rs. 359589.

Source : Equity Bulls

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