Read few concalls post COVID, my view on business and management –
- Management’s guidance is not to be relied upon. In mid FY22, they were saying 1.5-2x market growth which then came down to 1.5x by end of the year and then now it is 1.2-1.5x given variations in consumer sentiments. While I know that consumer durables sector has been under pressure overall but I would like to see them remain consistent and conservative throughout.
- They guided for 20% growth in consumer appliances business with 7-8% EBIT margins in Q4FY22 but it seems nowhere close as of now. They are struggling to do topline growth atm. Anyway this segment is pretty crowded so I doubt this can drive much of the value for the business.
- I doubt that overall growth will be sustained at 18-20% CAGR over 3-5 year period without consumer appliances taking off. As of now my expectations are capped at 15% with something less than that won’t be surprising as well. Most of this would be driven by bath and pipes business.
- Margins could go up to 11-12% by FY25 given the acquisition and softening of RM costs.
- Deleveraging could start in next 12 months reducing interest costs and giving boost to PAT further.
Overall, given my apprehension on management’s focus and capital allocation I would wait for some margin of safety to make any buy decision. My calculations suggest 5000-6000 Cr MCap is likely in 2 years.
Plus, my learnings of past few years say that always bet on market leader in consumer categories. So I am slightly biased as well.
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