Nilkamal (NILK) reported the highest ever quarterly revenue; however, sharp increase in raw material prices was a spoilsport. The strong recovery in demand across its B2C business which was adversely impacted due to the lockdown during second wave of Covid-19 in Q1FY22 along with revival in the economy led by the growth of B2B business. Net sales increased up by 38.4% YoY to Rs 7,394 million, while EBITDA came at Rs 670 million, declined by 22.9% YoY. The company reported net profit of Rs 283 million, lower by 43% over Q2FY21.

"NILK's focus on increasing distribution reach and new products launches will drive sustainable earnings growth in future. We introduce FY24E financials in this report. The stock witnessed substantial correction recently; however, we believe potential upside is still capped from current level. HOLD with a revised TP of Rs 2,369," said IDBI Capital Equity Research.

Key highlights and investment rationale

Healthy net sales growth led by strong demand recovery

NILK reported highest ever quarterly sales aided by 23% YoY volume growth. The sales of the company's plastic business stood at Rs 6,060 million whereas the retail business @home sales stood at Rs 520 million against Rs 4,170 million and Rs 190 million respectively. Further the mattress business achieved sales of Rs 310 million as against Rs 230 million. The company has strengthened its reach by increasing the @home and Nilkamal Furniture idea store. The management guided that they intend to reach 39 @home and 100 furniture stores by end of FY22E.

Sharp increase in raw material prices dented EBITDA margin

The company reported EBITDA margin of 9.1%, lower by 720bps over Q2FY21.  The steep increase in raw material prices since September, 2021 by more than 30% along with normalization of other expenditures impacted the profitability during Q2FY22 on comparable basis with Q2FY21. We expect EBITDA margin to be in the range of 12%-13% in near term.

Upside potential capped, HOLD with a TP of Rs 2,369

Though we like NILK owing its strong brand recall, extensive products folio and distribution reach, we believe upside potential is capped from current level. HOLD with a TP of Rs 2,369.

Disclaimer: IRIS has taken due care and caution in compilation of data for its web site. Information has been obtained by IRIS from sources which it considers reliable. However, IRIS does not guarantee the accuracy, adequacy or completeness of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. IRIS especially states that it has no financial liability whatsoever to any user on account of the use of information provided on its website.