Institutional Equities

Transcription

1 Management Meet Update Institutional Equities Kaya Reuters: KAYA.NS; Bloomberg: KAYA IN We interacted with the management of Kaya at an investor conference held by us recently. Following are the key takeaways: Competitive challenges remain high: Since inception, Kaya consistently faced competition from small standalone clinics/regional players. These unorganised players offer their services at a significant discount. However, it is difficult for small players to match up to Kaya s infrastructure and the range of services offered under a single roof. The management acknowledged that it is expecting the entry of new players in the organised segment, although at a regional level, and believes that this is positive for the industry as it will increase the overall awareness about skin care business in India which is still at a nascent stage. India business could witness break-even over the medium term: The management stated that specific steps are being taken to improve the performance of India business. In terms of services offered, anti-ageing, facial and pigmentation services are growing rapidly and the management believes that it will continue to grow in the same fashion, looking at the market potential. The management is extremely confident about the growth potential in the hair care segment and considers it as a major growth driver going forward. It is also focusing on product business, which accounts for of total turnover, by expanding its reach outside Kaya clinics. Kaya is increasing its presence on social media and focusing more on digital advertising. Also, it is going to renovate 20 top performing clinics in FY18 located at affluent areas to enhance the customer experience to further increase clinic throughput. It is targeting 14%- samestore sales growth or SSG over the next two to three years in India. The management did not give specific guidance on clinic expansion and stated that the company is opportunistically adding new clinics and relocating some of its old clinics. The Middle East (ME) business is somewhat stable and the management expects 8%-1 revenue growth in FY18. Saudi Arabia, which accounts for 2 of ME sales, witnessed a decline in 1QFY18 because of macroeconomic headwinds whereas the UAE business, which has 19 out of 23 clinics in ME, is performing well. To address the Saudi problem, Kaya is working on improving the customer experience and innovation-led products as well as services. No impact on pricing post GST on service business: Goods and Services Tax or GST has no impact on pricing of Kaya s service business. Small unorganised players, who were not registered in the pre-gst period, could witness an increase in pricing which could benefit Kaya to some extent. However, the product portfolio of Kaya, which forms of its revenues, will witness price hike of about 1-12% from September-October 2017 because of 28% GST as against 14%- tax in the pre-gst regime. The management stated that no player has increased the prices so far, but likely to do so by the end of the current quarter. Significant headroom to improve existing margin profile: Slowdown in clinic revenues and sustained increase in personnel and infrastructure costs significantly eroded Kaya s operating margin by 450bps-500bps in India. Kaya s focus on improving the top-line will bring down corporate overheads and advertising expenses which account for around 22% and 9% of revenues, respectively. The management is targeting corporate overheads in the range of 17%-18% over the near to medium term and 14%- in the long run through its cost optimisation intiatives. India business loss at EBITDA level has narrowed during the quarter because of withdrawal of excessive discounts. 30 August 2017 We are participating in AsiaMoney s Brokers Poll We would be pleased if you vote for us as the feedback helps us align our equity research offerings to meet your requirements. Click Here NOT RATED Sector: Consumer Goods CMP: Rs888 Abhishek Navalgund Research Associate abhishek.navalgund@nirmalbang.com Key Data Current Shares O/S (mn) 13.0 Mkt Cap (Rsbn/US$mn) 11.6/ Wk H / L (Rs) 1,205/650 Daily Vol. (3M NSE Avg.) 26,251 One Year Indexed Stock Performance Aug-16 Oct-16 Dec-16 Feb-17 Apr-17 Jun-17 Aug-17 Price Performance (%) KAYA NIFTY CNX NIFTY INDEX 1 M 6 M 1 Yr Kaya (2.8) Nifty Index (2.2) Source: Bloomberg

2 Note: Kaya has implemented Ind AS starting from FY18. Hence, as per SEBI circular to that effect dated 5th July 2017 the company has not reported consolidated numbers for 1QFY18. Hence, ME and consolidated numbers could not be plotted in the tables/graphs below. Exhibit 1: Margin and growth profile Particulars March 2016 June 2016 September 2016 December 2016 March June 2017 EBITDA margin % - overall (1) 3 N.A. PAT margin % - overall 1-3 (3) 0.2 N.A. India margins (%) EBITDA - India (4) (10) (4) (12) (10) (6) PAT - India (5) (6) (4) (13) (11) (6) ME region (%) EBITDA - ME region N.A. PAT - ME region N.A. SSG growth (%) Overall SSG (1) 6 N.A. India SSG (7) 4 9 ME region SSG N.A. Customer count (%) Customer count - India (3) 2 8 (2) 10 2 Customer count ME region (2) (5) N.A. Ticket size (%) Ticket size - India (2) 4 Ticket size ME region (6) N.A. Overall revenue growth (%) N.A. Revenue growth India (%) (4) 4 5 Revenue growth ME region (%) N.A. Exhibit 2: Revenue growth trend Exhibit 3: EBITDA margin trend Overall India ME -1 - Overall EBITDA % India EBITDA % ME EBITDA % Exhibit 4: SSG trend Overall India ME 2 Kaya

3 Exhibit 5: Peer comparison Company CMP (Rs) Mkt. cap. (US$mn) P/Sales (x) EV/EBITDA (x) P/E (x) Sales FY17 FY18E FY19E FY17 FY18E FY19E FY17 FY18E FY19E CAGR % EBITDA CAGR % EPS CAGR % Kaya N.R N.A. Hindustan Unilever 1,200 40, Dabur India 313 8, Emami 1,077 3, Source: Bloomberg, Nirmal Bang Institutional Research 3 Kaya

4 Financials (consolidated) Exhibit 6: Income statement Net sales 2,903 3,323 3,699 4,102 Growth (%) N.A COGS Staff costs 1,017 1,061 1,287 1,473 Rent Advertising and sales promotion Other expenses Total expenditure 2,786 2,995 3,566 3,952 EBITDA Growth (%) N.A (59.4) 12.7 EBITDA margin (%) Other income Exceptional items (373) (48) - - Interest costs Depreciation Profit before tax (317) (2) Growth (%) N.A (200.2) (72.3) (101.9) Tax Effective tax rate (%) Net profit from continuing (317) (1.7) operations Profit from discontinuing operations Total (2) Growth (%) N.A (200) (72) (101.9) Minority interest Adjusted PAT (8.1) Growth (%) N.A (15.0) (72.5) (109.3) Exhibit 8: Balance sheet Equity Reserves 650 2,217 2,384 2,375 Net worth 828 2,346 2,513 2,505 Minority interest Total loans 1, Deferred tax liability Other Long term liabilities Total liabilities 3,290 3,727 4,065 4,311 Gross block 1,583 1,821 2,232 3,644 Depreciation/Impairment 1,562 1,291 1,440 1,456 Net block ,188 Capital work-in-progress Goodwill on consolidation Total Non current assets 1,048 1,375 1,759 2,458 Inventories Debtors Cash Current investments 1,685 1, Total current assets 2,242 2,352 2,306 1,853 Creditors Other current liabilities 1,081 1,000 1, Total current liabilities 1,254 1,287 1, Net current assets 988 1, Total assets 3,290 3,727 4,065 4,311 Exhibit 7: Cash flow PBT (2) Depreciation Adjustments (167) (144) (108) (95) (Inc.)/dec. in working capital (99) (165) Tax paid (18) (9) (2) 1 Cash flow from operations (60) Capital expenditure (-) (163) (359) (421) (254) Free cash flow 755 (66) (374) (314) (Purchase)/sale of investments (1244) Other investment income (73) Cash flow from investing activities (115) (165) (63) (408) Proceeds of share capital Increase/ (decrease) in loan funds (708) Interest paid (23) - - (5) Cash from financial activities (730) Opening cash balance Closing cash balance Change in cash balance (110) (125) Exhibit 9: Key ratios Y/E March FY14 FY15 FY16 FY17 Per share (Rs) EPS (1) Book value Valuation (x) P/E N.A N.A N.R. P/sales N.A N.A P/BV N.A N.A EV/EBITDA N.A N.A EV/sales N.A N.A Return ratios (%) RoCE (1.4) (1.8) RoE (0.3) Margins (%) EBITDA EBIT (1.0) (1.2) PBT (10.8) (0.0) PAT (0.2) Turnover ratios Asset turnover ratio (x) Avg. collection period (days) Avg. inventory period (days) Avg. payment period (days) Solvency ratios (x) Debt-equity Growth (%) Sales N.A EBITDA N.A (59.4) 12.7 PAT N.A (15.0) (72.5) (109.3) 4 Kaya

5 Disclaimer Stock Ratings Absolute Returns BUY > ACCUMULATE to SELL < This report is published by Nirmal Bang s Institutional Equities Research desk. Nirmal Bang group has other business units with independent research teams separated by Chinese walls, and therefore may, at times, have different or contrary views on stocks and markets. Reports based on technical and derivative analysis may not match with reports based on a company's fundamental analysis. This report is for the personal information of the authorised recipient and is not for public distribution. This should not be reproduced or redistributed to any other person or in any form. This report is for the general information for the clients of Nirmal Bang Equities Pvt. Ltd., a division of Nirmal Bang, and should not be construed as an offer or solicitation of an offer to buy/sell any securities. We have exercised due diligence in checking the correctness and authenticity of the information contained herein, so far as it relates to current and historical information, but do not guarantee its accuracy or completeness. The opinions expressed are our current opinions as of the date appearing in the material and may be subject to change from time to time without notice. Nirmal Bang or any persons connected with it do not accept any liability arising from the use of this document or the information contained therein. The recipients of this material should rely on their own judgment and take their own professional advice before acting on this information. Nirmal Bang or any of its connected persons including its directors or subsidiaries or associates or employees or agents shall not be in any way responsible for any loss or damage that may arise to any person/s from any inadvertent error in the information contained, views and opinions expressed in this publication. Nirmal Bang Equities Private Limited (hereinafter referred to as NBEPL ) is a registered Member of National Stock Exchange of India Limited, Bombay Stock Exchange Limited. NBEPL has registered with SEBI as a Research Entity in terms of SEBI (Research Analyst) Regulations, (Registration No: INH to ). NBEPL or its associates including its relatives/analyst do not hold any financial interest/beneficial ownership of more than 1% in the company covered by Analyst. NBEPL or its associates/analyst has not received any compensation from the company covered by Analyst during the past twelve months. NBEPL /analyst has not served as an officer, director or employee of company covered by Analyst and has not been engaged in market-making activity of the company covered by Analyst. The views expressed are based solely on information available publicly and believed to be true. Investors are advised to independently evaluate the market conditions/risks involved before making any investment decision. Access all our reports on Bloomberg, Thomson Reuters and Factset. Team Details: Name Id Direct Line Rahul Arora CEO rahul.arora@nirmalbang.com - Girish Pai Head of Research girish.pai@nirmalbang.com / 18 Dealing Ravi Jagtiani Dealing Desk ravi.jagtiani@nirmalbang.com , Pradeep Kasat Dealing Desk pradeep.kasat@nirmalbang.com /8101, Michael Pillai Dealing Desk michael.pillai@nirmalbang.com /8103, Atul Vitha Dealing Desk atul.vitha@nirmalbang.com / Nirmal Bang Equities Pvt. Ltd. Correspondence Address B-2, 301/302, Marathon Innova, Nr. Peninsula Corporate Park, Lower Parel (W), Mumbai Board No. : /1; Fax. : Kaya