SHANKARA BUILDING PRODUCTS LTD ISIN… · Shankara Building Products is one the leading organized retailers of home improvement and building products in India based on number of stores,

Document code: FOTL_180920183_1 Copyright © 2016 Firstobject Technologies Ltd. All rights reserved

SHANKARA BUILDING PRODUCTS LTDResult Update (CONSOLIDATED BASIS): Q1 FY19

CMP: 1278.85 SEP 18th, 2018

Overweight ISIN:INE274V01019

Index Details SYNOPSIS

Shankara Building Products Ltd is one of theleading organized retailers of homeimprovement and building products in India,operating under the brand name ShankaraBuildPro.

Revenue for Q1 FY19 rose by 32.72% toRs.7852.18 million from Rs.5916.19 million inQ1 FY18.

During Q1 FY19, EBIDTA of the companystood at Rs.490.19 million as against Rs.392.37million in the corresponding quarter of theprevious year, up by 24.93%.

During Q1 FY19, Profit before tax increased by15.38 % to Rs.306.52 million from Rs.265.67million in Q1 FY19.

During Q1 FY19, net profit grew 13.01% toRs.194.56 million from Rs.172.16 million in thecorresponding quarter of previous year.

EPS of the company has increased to Rs.8.52 ashare during the quarter as compared Rs.7.54per share over previous year period.

Shankara Building Products Limited hasannounced the opening of its 133rd store underthe ‘Shankara Buildpro’ brand at Hassan,Karnataka.

CRISIL has upgraded its ratings on thecommercial paper and bank facilities ofShankara Building Products Limited (Shankara;part of the Shankara Buildpro group) to 'CRISILA/Stable/CRISIL A1' from 'CRISIL A-/Stable/CRISIL A2+'.

Net Sales and PAT of the company are expectedto grow at a CAGR of 12% and 23% over 2017to 2020E, respectively.

Stock Data

Sector Iron & Steel ProductsBSE Code 540425Face Value 10.0052wk. High / Low (Rs.) 2365.00/1155.55Volume (2wk. Avg.) 16000Market Cap (Rs. in mn.) 29220.83

Annual Estimated Results(A*: Actual / E*: Estimated)

Years(Rs. In mn) FY18A FY19E FY20ENet Sales 25486.66 28697.97 31854.75EBITDA 1758.34 1930.24 2158.27Net Profit 737.90 801.49 929.01EPS 32.29 35.08 40.66P/E 39.60 36.46 31.45

Shareholding Pattern (%)

As on Jun 2018 As on Mar 2018

Promoter 56.21 56.20

Public 43.79 43.80

Others -- --

1 Year Comparative Graph

SHANKARA BUILDING PRODUCTS LTD S&P BSE SENSEX

PEER GROUPS CMP MARKET CAP EPS(TTM) P/E (X)(TTM) P/BV(X) DIVIDENDCompany Name (Rs.) Rs. in mn. (Rs.) Ratio Ratio (%)Shankara Building Products Ltd 1278.85 29220.83 33.28 38.43 6.41 32.50Sicagen India Ltd 31.35 1240.60 1.50 20.90 0.32 6.00


QUARTERLY HIGHLIGHTS (CONSOLIDATED BASIS):

Results updates- Q1 FY19,

(Rs. In millions) Jun-18 Jun-17 % Change

Revenue 7852.18 5916.19 32.72%

Net Profit 194.56 172.16 13.01%

EPS 8.52 7.54 12.99%

EBIDTA 490.19 392.37 24.93%

The company’s net profit increased to Rs. 194.56 million in Q1 FY19 from Rs. 172.16 million in the corresponding

quarter of previous year, higher by 13.01 %. Revenue for the quarter was Rs. 7852.18 million in Q1 FY19 as against Rs.

5916.19 million in Q1 FY18, an increase of 32.72%. Reported earnings per share of the company stood at Rs. 8.52 a share

during the quarter, as against Rs. 7.54 per share over previous year period. EBIDTA of the company has increased by

24.93% to Rs. 490.19 million in Q1 FY19 as against Rs. 392.37 million in the corresponding quarter of the previous year.

Break up of Expenditure

Break up ofExpenditure

Value in Rs. Million

Q1 FY19 Q1 FY18 %Change

Cost of MaterialConsumed 4124.45 2702.65 53%

Purchase of stockin Trade 2888.17 2477.31 17%

Employee BenefitsExpense 174.54 128.10 36%

Depreciation &AmortizationExpenses

44.95 28.65 57%

Other Expenses 288.50 273.39 6%


Revenue segment:

Latest Updates:

Shankara Building Products Limited has announced the opening of its 133rd store under the ‘Shankara Buildpro’

brand at Hassan, Karnataka.

CRISIL has upgraded its ratings on the commercial paper and bank facilities of Shankara Building Products Limited

(Shankara; part of the Shankara Buildpro group) to 'CRISIL A/Stable/CRISIL A1' from 'CRISIL A-/Stable/CRISIL

A2+'.

COMPANY PROFILE

Shankara Building Products is one the leading organized retailers of home improvement and building products in India

based on number of stores, operating under the brand name ‘Shankara Buildpro’. As on date, the Company has 133

Shankara Buildpro stores spread across 9 states and 1 union territory in India. The Company caters to a large customer

base across various end-user segments in urban and semi-urban markets through multi-channel sales approach, processing

facilities, supply chain and logistics capabilities.


FINANCIAL HIGHLIGHT (CONSOLIDATED BASIS): (A*- Actual, E* -Estimations & Rs. In Millions)

Balance Sheet as of March 31, 2017 -2020E

FY17A FY18A FY19E FY20ESOURCES OF FUNDSShareholder’s Funds

Equity Share Capital 228.49 228.49 228.49 228.49Other Equity 3669.39 4328.53 5130.02 6059.04Non Controlling Interest 0.47 0.61 0.72 0.80

1. Sub Total – Net worth 3898.35 4557.64 5359.24 6288.33Non Current Liabilities

a) Financial Liabilitiesi) Borrowings 58.01 8.51 9.45 8.13ii) Other Financial Liabilities 0.15 0.15 0.15 0.16

b) Provisions 8.10 5.93 6.71 7.35c) Deferred Tax Liabilities 140.52 169.43 193.66 180.10

2. Sub Total – Non Current Liabilities 206.77 184.03 209.96 195.74Current Liabilities

a) Financial liabilitiesi)Borrowings 2101.04 2419.70 2712.48 2793.85ii) Trade Payables 2610.08 4612.20 5027.30 4876.48iii)Other financial Liabilities 228.68 181.48 161.52 180.09

b)Provisions 4.47 6.69 5.58 6.36c) Current Tax Liabilities 181.75 80.90 67.95 75.43d) Other Current Liabilities 188.98 84.91 101.89 109.02

3. Sub Total – Current Liabilities 5315.00 7385.87 8076.72 8041.24Total Liabilities (1+2+3) 9420.12 12127.54 13645.92 14525.31APPLICATION OF FUNDSNon-Current Assets

a) Property, Plant and Equipment 2448.37 2725.76 2949.27 3214.70b) Investment Property 1.39 1.37 1.39 1.44c) Intangible Assets 0.00 103.52 114.42 123.11d) Goodwill On Consolidation 140.40 140.40 140.40 140.40e) Financial Assets

i) Trade Receivables 22.99 30.60 33.05 29.08ii) Loans 103.48 179.56 132.87 148.82

f) Other Noncurrent Assets 22.66 25.21 26.72 28.971. Sub Total – Non Current Assets 2739.29 3206.41 3398.13 3686.52Current Assets

a )Inventories 2794.54 4157.09 5050.86 5808.49b) Financial Assets

i) Trade Receivables 3084.00 4241.38 4722.33 4480.11ii) Cash and Cash Equivalents 18.36 12.34 15.06 18.67iii) Bank Balances Other Than Above 643.77 47.69 85.84 109.88iv) Other Financial Assets 13.87 11.63 12.91 13.94

c) Other Current Assets 126.29 450.99 360.79 407.702. Sub Total – Current Assets 6680.83 8921.12 10247.79 10838.79Total Assets (1+2) 9420.12 12127.54 13645.92 14525.31


Annual Profit & Loss Statement for the period of 2017 to 2020E

Value(Rs.in.mn) FY17A FY18A FY19E FY20E

Description 12m 12m 12m 12mNet Sales 23101.41 25486.66 28697.97 31854.75Other Income 6.80 6.44 7.47 8.07Total Income 23108.20 25493.10 28705.45 31862.82Expenditure -21585.84 -23734.76 -26775.21 -29704.56Operating Profit 1522.37 1758.34 1930.24 2158.27Interest -506.17 -463.47 -506.57 -526.83Gross profit 1016.20 1294.87 1423.67 1631.43Depreciation -114.06 -135.91 -156.29 -175.05Profit Before Tax 902.14 1158.97 1267.37 1456.38Tax -314.31 -420.93 -465.89 -527.21Profit After Tax 587.83 738.04 801.49 929.17Minority Interest -0.13 -0.14 -0.15 -0.16Net Profit 587.70 737.90 801.49 929.01Equity capital 228.49 228.49 228.49 228.49Reserves 3708.40 4328.53 5130.02 6059.04Face value 10.00 10.00 10.00 10.00EPS 25.72 32.29 35.08 40.66

Quarterly Profit & Loss Statement for the period of 31st Dec 2017 to 30th Sep, 2018E

Value(Rs.in.mn) 31-Dec-17 31-Mar-18 30-June-18 30-Sep-18EDescription 3m 3m 3m 3mNet Sales 6246.16 7608.10 7852.18 7538.09Other Income 2.33 1.37 2.11 2.61Total Income 6248.49 7609.47 7854.29 7540.70Expenditure -5837.82 -7067.25 -7364.10 -7031.53Operating Profit 410.67 542.22 490.19 509.17Interest -109.99 -137.38 -138.72 -131.78Gross profit 300.68 404.84 351.47 377.39Depreciation -32.99 -43.13 -44.95 -48.10Profit Before Tax 267.70 361.72 306.52 329.30Tax -91.16 -145.61 -111.92 -119.27Profit After Tax 176.54 216.10 194.60 210.02Minority Interest -0.03 -0.05 -0.04 -0.04Net Profit 176.51 216.05 194.56 209.99Equity capital 228.49 228.49 228.49 228.49Face value 10.00 10.00 10.00 10.00EPS 7.72 9.46 8.52 9.19


Ratio Analysis

Particulars FY17A FY18A FY19E FY20E

EPS (Rs.) 25.72 32.29 35.08 40.66

EBITDA Margin (%) 6.59% 6.90% 6.73% 6.78%

PBT Margin (%) 3.91% 4.55% 4.42% 4.57%

PAT Margin (%) 2.54% 2.90% 2.79% 2.92%

P/E Ratio (x) 49.72 39.60 36.46 31.45

ROE (%) 14.93% 16.20% 14.96% 14.78%

ROCE (%) 23.10% 23.23% 21.95% 21.82%

Debt Equity Ratio 0.55 0.53 0.51 0.45

EV/EBITDA (x) 20.18 17.97 16.50 14.78

Book Value (Rs.) 172.30 199.44 234.52 275.17

P/BV 7.42 6.41 5.45 4.65

Charts


OUTLOOK AND CONCLUSION

At the current market price of Rs. 1278.85, the stock P/E ratio is at 36.46 FY19E and 31.45 FY20E respectively.

Earnings per share (EPS) of the company for the earnings for FY19E and FY20E are seen at Rs. 35.08 and Rs. 40.66

respectively.

Net Sales and PAT of the company are expected to grow at a CAGR of 12% and 23% over 2017 to 2020E

respectively.

On the basis of EV/EBITDA, the stock trades at 16.50 x for FY19E and 14.78 x for FY20E.

Price to Book Value of the stock is expected to be at 5.45 x and 4.65 x for FY19E and FY20E respectively.

INDUSTRY OVERVIEW

Economic environment

India's GDP growth rate trended lower in FY 18 at around 6.6% (E) as compared to 7 .1 % for FY 17. However, after a

dip in performance in Q1 FY 18, growth rates picked up in subsequent quarters. The last quarter of the financial year saw

pickup across multiple industry categories as also in rural demand. Improved demand across emerging economies and

advanced economies led to strengthening of global trade volumes. Benign inflation globally also helped boost demand.

Global GDP growth stood at 3.6% in 2017 as compared to 3.2% in 2016.

Building products industry

Building products serve as key ingredients to new home construction and home renovation demand and is witnessing

significant growth. There is a strong unmet demand for housing across all socio economic categories. The overall housing

shortage is estimated at -100 million homes. Population growth, increasing nuclearisation, rising aspirations coupled with

increasing affordability are key drivers for housing growth demand. Low interest rates and easy availability of finance


become significant enablers for housing growth. In addition to housing, building products find applications in varied

segments. The fundamental nature of these products helps them ride growth across the varied sectors of the economy.

The building products industry, for some of the key selected categories, is growing at a rate of 8.5% and is expected to

reach a size – Rs 7 .2 lakh crore by 2022. As per Crisil estimates, around 34% to 38 % of these products get sold through

the retail channel presenting a huge opportunity for building product retailers. GST and e-way bill implementation, which

bring in further transparency in the sector and impact the entire chain right from the manufacturers to the retailers, is

expected to be a huge boost for organized retailers of building products.

Evolving nature of the building products retail industry

A large part of the building product industry is fragmented with a number of small standalone players operating in the

country. Many of these stores face challenges of scaling up on account of lack of systems and processes, adequate funding

and succession issues. Increased competitive intensity, compliance costs further impacts their viability.

Consequently many of these store owners are offering themselves for takeovers. Manufacturers of building products are

keen to build a strong brand as well as a direct connect and relationship with customers. They want retail stores to keep

pace with their product evolutions. Manufacturers look to aligning themselves with customer needs in a transparent

manner. Organized stores are best positioned to offer this. A healthy relationship with manufacturers in turn ensures the

retail stores to provide good service levels to their customers in terms of product knowledge and in-time deliveries.

A large part of India stays in small independent houses or small building structures. Living in one's own home is a very

deep seated aspiration for most Indians. Many of the people also build homes themselves with the help of a contractor.

People also undertake periodic home renovations or have additional structural requirements. The process of home

construction or home renovation can be challenging for a middle class customer in terms of the knowledge, time taken

and financial outlay.

A one stop building materials organized retailer is able to address these difficulties in a transparent manner.

The professional customers of building products are demanding in terms of variety and service. Access to a wide product

portfolio across brands is critical to satisfy their needs. Availability of a trusted source which can supply these products at

competitive prices is finding increased acceptance. Omni channel delivery networks can also play a big role in engaging

with customers.

Opportunities

The go-to brand for building products:

The retailing of building products is a fragmented industry with largely standalone stores operating in single locations in

limited product categories.

Shankara has already embarked on this journey as multi-product, multi-brand, multi-location retail chain with 133 stores.

The growth opportunity is substantial in the geographies operate. The company’s such opportunities in other parts of the

country. The company can build multiple levels of differentiators on top of this large store network. This is a high service


level oriented industry. An organized retailer has a better control on supply chain, tighter integration with suppliers and an

ability to give better training to its staff. The company could influence repeat purchase behaviour through better service

levels and innovative loyalty programs. Availability of loans on purchase of the company products could be another

means to increase sales opportunities.

Consolidation: the company believes that the industry is rightly poised for consolidation. The Company has executed a

few takeovers and believes that there are more such opportunities for us to accelerate the company growth plans.

Outlook

After a dip in GDP growth rate in FY 18 at 6.6%, RBI expects India's GDP to grow at 7.4% in FY 19. There is a

discernible increase in housing demand across India. This company continues to be very positive on the growth prospects

of the building products industry.


Disclosure Section

The information and opinions in Firstcall Research was prepared by our analysts and it does not constitute an offer orsolicitation for the purchase or sale of any financial instrument including any companies scrips or this is not an officialconfirmation of any transaction. The information contained herein is from publicly available secondary sources and dataor other secondary sources believed to be reliable but we do not represent that it is accurate or complete and it should notbe relied on as such. Firstcall Research or any of its affiliates shall not be in any way responsible for any loss or damagethat may arise to any person from any inadvertent error in the information contained in this report. Firstcall Research and/or its affiliates and/or employees will not be liable for the recipients’ investment decision based on this document.

Analyst Certification

The following analysts hereby state that their views about the companies and sectors are on best effort basis to the best oftheir knowledge. Unless otherwise stated, the individuals listed on the cover page of this report are research analysts. Theanalyst qualifications, sectors covered and their exposure if any are tabulated hereunder:

Name of the Analyst Qualifications SectorsCovered

Exposure/Interest tocompany/sector UnderCoverage in the CurrentReport

Dr.C.V.S.L. Kameswari M.Sc, PGDCA,M.B.A,Ph.D (Finance)

Pharma &Diversified

No Interest/ Exposure

U. Janaki Rao M.B.A CapitalGoods


B. Anil Kumar M.B.A Auto, IT &FMCG


M. Vijay M.B.A Diversified No Interest/ ExposureV. Harini Priya M.B.A Diversified No Interest/ ExposureB. Srikanth M.B.A Diversified No Interest/ Exposure

Important Disclosures on Subject Companies

In the next 3 months, neither Firstcall Research nor the Entity expects to receive or intends to seek compensation for anyservices from the company under the current analytical research coverage. Within the last 12 months, Firstcall Researchhas not received any compensation for its products and services from the company under the current coverage. Within thelast 12 months, Firstcall Research has not provided or is providing any services to, or has any client relationship with, thecompany under current research coverage.

Within the last 12 months, Firstcall Research has neither provided or is providing any services to and/or in the past has notentered into an agreement to provide services or does not have a client relationship with the company under the researchcoverage.

Certain disclosures listed above are also for compliance with applicable regulations in various jurisdictions. FirstcallResearch does not assign ratings of Buy, Hold or Sell to the stocks we cover. Overweight, Equal-weight, No-Weight andUnderweight are not the equivalent of buy, hold and sell. Investors should carefully read the definitions of all weightsused in Firstcall Research. In addition, since Firstcall Research contains more complete information concerning theanalyst's views, investors should carefully read Firstcall Research, in its entirety, and not infer the contents from theweightages assigned alone. In any case, weightages (or research) should not be used or relied upon as investment advice.


An investor's decision to buy or sell should depend on individual circumstances (such as the investor's own discretion, hisability of understanding the dynamics, existing holdings) and other considerations.

Analyst Stock Weights

Overweight (O): The stock's total return is expected to exceed the average total return of the analyst's industry (orindustry team's) coverage universe, on a risk-adjusted basis, over the next 12-18 months.

Equal-weight (E): The stock's total return is expected to be in line with the average total return of the analyst's industry(or industry team's) coverage universe, on a risk-adjusted basis, over the next 12-18 months.

No-weight (NR): Currently the analyst does not have adequate conviction about the stock's total return relative to theaverage total return of the analyst's industry (or industry team's) coverage universe, on a risk-adjusted basis, over the next12-18 months.

Underweight (U): The stock's total return is expected to be below the average total return of the analyst's industry (orindustry team's) coverage universe, on a risk-adjusted basis, over the next 12-18 months.

Unless otherwise specified, the weights included in Firstcall Research does not indicate any price targets. The statisticalsummaries of Firstcall Research will only indicate the direction of the industry perception of the analyst and theinterpretations of analysts should be seen as statistical summaries of financial data of the companies with perceivedindustry direction in terms of weights.

Firstcall Research may not be distributed to the public media or quoted or used by the public media without the expresswritten consent of Firstcall Research. The reports of Firstcall Research are for Information purposes only and is not to beconstrued as a recommendation or a solicitation to trade in any securities/instruments. Firstcall Research is not abrokerage and does not execute transactions for clients in the securities/instruments.

Firstcall Research - Overall StatementS. No Particulars Remarks1 Comments on general trends in the securities market Full Compliance in Place2 Discussion is broad based and also broad based indices Full Compliance in Place3 Commentaries on economic, political or market conditions Full Compliance in Place4

Periodic reports or other communications not for public appearanceFull Compliance in Place

5 The reports are statistical summaries of financial data of the companies as and whereapplicable

Full Compliance in Place

6 Analysis relating to the sector concerned Full Compliance in Place7 No material is for public appearance Full Compliance in Place8 We are no intermediaries for anyone and neither our entity nor our analysts have any

interests in the reportsFull Compliance in Place

9 Our reports are password protected and contain all the required applicabledisclosures


10 Analysts as per the policy of the company are not entitled to take positions either fortrading or long term in the analytical view that they form as a part of their work


11 No conflict of interest and analysts are expected to maintain strict adherence to thecompany rules and regulations.



12As a matter of policy no analyst will be allowed to do personal trading or deal andeven if they do so they have to disclose the same to the company and take priorapproval of the company


13Our entity or any analyst shall not provide any promise or assurance of any favorableoutcome based on their reports on industry, company or sector or group


14 Researchers maintain arms length/ Chinese wall distance from other employees ofthe entity


15No analyst will be allowed to cover or do any research where he has financial interest


16 Our entity does not do any reports upon receiving any compensation from anycompany


Firstcall Research Provides

Industry Research on all the Sectors and Equity Research on Major Companiesforming part of Listed and Unlisted Segments

For Further Details Contact:Mobile No: 09959010555

E-mail: [email protected]@firstcallresearch.comwww.firstcallresearch.com

Documents

SHANKARA BUILDING PRODUCTS LTD ISIN… · Shankara Building Products is one the leading organized retailers of home improvement and building products in India based on number of stores,