Mid-caps - Results Preview - Flattish Sequential Growth in the Offing - Reliance Securities

The mid-cap companies under our coverage universe are expected to witness flattish sequential growth in 1QFY22, as strong demand momentum witnessed in 2HFY21 was halted due to the second COVID wave from mid-Apr'21 with utilisation declining by 30-40% in Apr'21 and May'21. Demand also remained subdued during this period due to limited market hours across several states. However, gradual improvement was witnessed from Jun'21 onwards with steady decline in COVID caseload in most states.

Whilst the demand for structural steel pipes was severely impacted in Apr'21 and May'21 due to the second COVID wave, we believe higher HRC prices would lead to 20% QoQ and 63% YoY realisation growth. Notably, higher steel prices also impacted demand during the quarter. Plastic packaging demand for paints, which was strong till 4QFY21, faced headwinds during the quarter, as the major paint manufacturers decreased their production due to lower demand. Food & FMCG (F&F) packaging segment (particularly for ice creams) was severely impacted for two peak summer seasons in a row. Domestically, demand for laminated tubes in oral care category continued to show stable growth, while the personal care (cosmetics and pharma) category was impacted due to subdued demand.

We expect decent traction in fruit pulp/juice-based drinks with shift in preference from unorganized to organized players. Though the second COVID-19 wave impacted Carbonated Soft Drinks (CSD) volume from the restaurant segment, it is expected to be compensated by the rise in home consumption. Decline in COVID caseload in Jun'21 along with rising vaccination coverage and opening up of restaurants helped the CSD volume to some extent.

The mid-cap companies under our coverage universe faced challenges on the demand front with limited market hours across states. Stocks under our coverage universe are expected to deliver revenue growth of 62.9% YoY (on lower base) and remain flat on sequential comparison, while EBITDA is expected to grow by 28.9% YoY (up 2.5% QoQ) with slight correction in RM cost after continuous rise seen in FY21. EBITDA margin is expected to degrow by 360bps YoY and 30bps QoQ, while PAT is expected to grow by 59.6% YoY (up 4.8% QoQ). Thus, we expect the companies under our coverage universe to deliver flattish sequential growth with strong YoY up-tick on lower base. Looking ahead, we believe sustainability of demand recovery seen from Jun'21 is highly dependent on subsequent COVID wave, if any.

Link to the report

Source : Equity Bulls

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