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Document code: FOTL_160120193_2 Copyright © 2016 Firstobject Technologies Ltd. All rights reserved

NILKAMAL LTDResult Update (PARENT BASIS): Q2 FY19

CMP: 1410.05 JAN 16th, 2019

Overweight ISIN:INE310A01015

Index DetailsSYNOPSIS

Nilkamal Limited is an industry pioneer in themanufactu.ring business of moulded furniture andmaterial handling products with diversified productprofile.Revenue for the quarter stood at Rs. 6136.69 mnfrom Rs. 4646.93 mn, when compared with the prioryear period, up by 32.06%.During the quarter, EBIDTA is Rs. 536.34 mn asagainst Rs. 582.84 mn in the corresponding period ofthe previous year.During Q2 FY19, Profit before tax stood at Rs.369.83 mn as compared to Rs. 425.28 mn in Q2FY18.During Q2 FY19, net profit registered at Rs. 248.88mn from Rs. 278.26 mn in the corresponding quarterof previous year.EPS of the company stood at Rs. 16.68 during thequarter, as against Rs. 18.65 per share over previousyear period.The Revenue of the company rose by 19.85% at Rs.11854.55 mn in H1 FY19 as against Rs. 9890.80 mnin H1 FY18.During H1 FY19 PAT of the company rose by10.75% at Rs. 555.96 mn as compared to Rs. 501.99mn in H1 FY18.The plastics division of the Company achievedvolume and value growth of 21% and 29%respectively for H1 FY19.The Net sales volume and value growth of 30% and35.56% respectively in its plastic business.The company has approved a payment of an interimdividend of 40% i.e. Rs. 4.00 per equity share of Rs.10 each.Net Sales and PAT of the company are expected togrow at a CAGR of 8% and 6% over 2017 to 2020E,respectively.

Stock DataSector Plastic ProductsBSE Code 523385Face Value 10.0052wk. High / Low (Rs.) 2133.30/1390.35Volume (2wk. Avg.) 2098Market Cap (Rs. in mn.) 21041.47

Annual Estimated Results(A*: Actual / E*: Estimated)Years(Rs. In mn) FY18A FY19E FY20ENet Sales 21079.56 24241.50 26665.65EBITDA 2397.18 2534.26 2753.80Net Profit 1171.06 1210.22 1323.11EPS 78.48 81.10 88.67P/E 17.97 17.39 15.90

Shareholding Pattern (%)

As on Sep 2018 As on June 2018

Promoter 63.97 64.09

Public 36.03 35.91

Others -- --

1 Year Comparative Graph

NILKAMAL LTD S&P BSE SENSEX

PEER GROUPS CMP MARKET CAP EPS(TTM) P/E (X)(TTM) P/BV(X) DIVIDEND

Company Name (Rs.) Rs. In mn. (Rs.) Ratio Ratio (%)

Nilkamal Ltd 1410.05 21041.47 82.09 17.18 2.64 130.00Finolex Industries Ltd 532.15 66037.40 29.83 17.84 2.39 100.00Shaily Engg Plastics Ltd 930.00 7736.10 29.55 31.47 6.22 75.00Supreme Industries Ltd 1109.20 140898.20 41.42 26.78 7.44 600.00


QUARTERLY HIGHLIGHTS (PARENT BASIS)

Results updates- Q2 FY19,

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

Revenue 6136.69 4646.93 32.06%

Net Profit 248.88 278.26 (10.56%)

EPS 16.68 18.65 (10.56%)

EBIDTA 536.34 582.84 (7.98%)

Revenue for the 2nd quarter registered at Rs. 6136.69 million as compared to Rs. 4646.93 million over the prior year

period, up by 32.06%. During the Q2 FY19, EBIDTA is Rs. 536.34 million as against Rs. 582.84 million in the

corresponding period of the previous year. The company’s net profit stood at Rs. 248.88 million as against Rs. 278.26

million in the corresponding quarter ending of previous year. Reported earnings per share of the company stood at Rs.

16.68 as compared to Rs. 18.65 per share over previous year period.

Break up of Expenditure

Break up ofExpenditure

Value in Rs. Million

Q2 FY19 Q2 FY18 %Change

Cost of Materialsconsumed 2516.23 1457.22 73%

Purchase of Stock inTrade 1415.59 1211.78 17%

Employee BenefitExpenses 450.94 404.55 11%

Depreciation andAmortization Expenses 121.45 130.01 -7%

Other expenses 1513.18 1111.06 36%


Performance for H1 FY19:

With its broad-based business across all the geographies, during H1 FY19, the company posted net sales of Rs.

11854.55 mn vis-a-vis Rs. 9890.80 mn in H1 FY18, an increase of 19.85%.

EBIDT for the period stood at Rs. 1103.60 mn as against Rs. 1058.90 mn on a y-o-y basis.

The Company posted PAT of Rs. 555.96 mn as against Rs. 501.99 mn for H1 FY18, up by 10.75%.

The plastics division of the Company achieved volume and value growth of 21% and 29% respectively for H1 FY19.

The Net sales volume and value growth of 30% and 35.56% respectively in its plastic business.

Performance of The Retail Business:

'@home' - the retail business of the company recorded turnover of Rs. 555.10 mn for Q2 FY19, as compared to Rs.

529.60 mn of the corresponding quarter of the previous year.

The business posted EBIDTA of Rs. 18.90 mn for Q2 FY19 vis-à-vis Rs. 24.80 mn of Q2 FY18, whereas the profits

for H1 FY19 stood at Rs. 10.70 mn as compared to Rs. 860 mn of H1 FY18.

All the @home stores has achieved profits at store level. Further expanding ahead under its new franchise

arrangement, the retail business "@home" has opened one more store under the said arrangement at Rajkot.

Performance Mattress Business:

The mattress business of the company displayed a sales growth of Rs. 172.00 mn for the quarter under review from

Rs. 151.90 mn on y-o-y basis, up by 13.23

The sales for H1 FY19 stood Rs. 336.70 mn crores as compared to Rs. 269.10 mn of H1 FY18.

While the bubble guard business of the company achieved sales of Rs. 26.00 mn as against Rs. 8.4 mn on y-o-y basis.

Other Highlights:

The Company has incurred a capital expenditure of Rs. 351.80 mn during Q2 FY19, totaling to Rs. 586.90 mn for H1

FY19.

The Company envisages incurring additional capex of approximately Rs. 800 mn for the second half of FY19.

The company has approved a payment of an interim dividend of 40% i.e. Rs. 4.00 per equity share of Rs. 10 each.

The Company has been awarded the ISO 8611-1:2011 certification for its Pallets AP & SP series from TUV NORD

for its Sinnar Unit in recognition of the constant efforts of the Company towards quality improvement.

Joint Venture and subsidiaries

Nilkamal Bito Storage Systems Private Limited - the company's Indo-German Joint Venture recorded turnover of Rs.

596.50 mn for Q2 FY19 vis-à-vis Rs. 298.50 mn for Q2 FY18


Indo- US Joint Venture viz. Cambro Nilkamal Private Limited has maintained its growth trajectory and posted

turnover of Rs. 135.5 mn up from Rs. 91.6 mn on y-o-y basis.

The Company' s subsidiary company at Ajman, UA.E showed satisfactory erformance as anticipated by the Company

whereas the other subsidiary at Sri Lanka displayed a subdued performance.

COMPANY PROFILE

Nilkamal Limited is an industry pioneer in the manufactu.ring business of moulded furniture and material handling

products with diversified product profile across various segments along vvith a diversified customer base including

household customers, industrial customers and retail buyers. It is also having its presence in the retail business of lifestyle

furniture, furnishings and accessories under its brand '@home' & Nilkamal Mattresses.


FINANCIAL HIGHLIGHT (PARENT BASIS) (A*- Actual, E* -Estimations & Rs. In Millions)Balance Sheet as of March 31, 2017 -2020E

FY17A FY18A FY19E FY20EASSETS1) Non-Current Assets

a) Property, plant and equipment 2562.35 3260.61 3423.64 3629.06b) Capital Work in Progress 319.86 87.84 184.45 236.10c) Other Intangible Assets 1.89 6.22 9.65 12.06d) Financial Assets

i) Investments in Subsidiaries and Joint Ventures 252.93 252.93 265.57 281.51ii) Other Investments 3.83 3.83 4.41 4.85iii) Loans 225.22 231.43 240.69 252.72iv) Other Financial Assets 28.24 11.68 29.79 46.18

e) Other Non Current Assets (net) 246.60 220.39 416.54 533.18Sub - Total Non- Current Assets 3640.93 4074.94 4574.74 4995.65

2) Current Assetsa) Inventories 3262.73 3686.03 4423.24 5130.96b) Financial Assets

i) Trade Receivables 2900.22 3314.89 3646.38 3938.09ii) Cash and Cash equivalents 52.28 92.12 115.14 135.87iii) Bank Balances other than Cash 8.15 21.97 28.12 33.18iv) Loans 56.53 73.67 88.41 101.67v) Other Financial Assets 6.42 3.17 13.45 17.22

c) Other Current Assets 401.39 527.42 448.31 403.48Sub - Total Current Assets 6687.71 7719.27 8763.04 9760.46

Total Assets (1+2) 10328.64 11794.21 13337.79 14756.10EQUITY AND LIABILITIES1) EQUITY

a) Equity Share Capital 149.23 149.23 149.23 149.23b) Other Equity 6822.11 7822.53 9032.75 10355.86

Total Equity 6971.33 7971.76 9181.98 10505.092) Non Current Liabilities

a) Financial Liabilitiesi) Borrowings 0.00 0.00 339.97 356.97ii) Other Financial Liabilities 462.05 498.90 528.83 555.27

b) Provisions 57.16 53.67 56.35 58.60c) Deferred Tax Liabilities 52.16 107.24 123.32 138.12d) Other Non-Current Liabilities (net) 28.01 34.84 37.62 39.88Sub - Total Non Current Liabilities 599.38 694.64 1086.10 1148.85

3) Current Liabilitiesa) Financial Liabilities

i) Borrowings 828.06 929.08 905.17 868.96ii) Trade Payables 1092.86 1688.30 1527.61 1482.16iii) Other financial liabilities 232.96 142.92 174.36 205.74

b) Provisions 360.93 225.01 270.01 310.51c) Current tax Liabilities 209.92 106.66 125.85 144.73d) Other Current Liabilities 33.21 35.87 66.71 90.06Sub - Total Current Liabilities 2757.94 3127.82 3069.71 3102.17

Total Equity and Liabilities (1+2+3) 10328.64 11794.21 13337.79 14756.10


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 20948.47 21079.56 24241.50 26665.65

Other Income 120.12 77.36 122.23 140.57

Total Income 21068.59 21156.92 24363.73 26806.21

Expenditure -18775.38 -18759.75 -21829.47 -24052.41

Operating Profit 2293.22 2397.18 2534.26 2753.80

Interest -115.88 -124.93 -181.15 -213.76

Gross profit 2177.34 2272.25 2353.11 2540.04

Depreciation -488.17 -484.69 -494.38 -514.15

Profit Before Tax 1689.17 1787.56 1858.73 2025.89

Tax -504.63 -616.51 -648.51 -702.78

Net Profit 1184.54 1171.06 1210.22 1323.11

Equity capital 149.23 149.23 149.23 149.23

Reserves 6822.11 7822.53 9032.75 10355.86

Face value 10.00 10.00 10.00 10.00

EPS 79.38 78.48 81.10 88.67

Quarterly Profit & Loss Statement for the period of 31st Mar, 2018 to 31st Dec, 2018E

Value(Rs.in.mn) 31-Mar-18 30-June-18 30-Sep-18 31-Dec-18E

Description 3m 3m 3m 3mNet sales 5960.62 5717.86 6136.69 6750.35

Other income 19.36 18.40 46.26 30.07

Total Income 5979.98 5736.26 6182.95 6780.42

Expenditure -5307.46 -5169.05 -5646.61 -6175.90

Operating profit 672.53 567.21 536.34 604.52

Interest -34.23 -32.38 -45.05 -51.81

Gross profit 638.30 534.83 491.29 552.71

Depreciation -112.32 -120.83 -121.45 -127.53

Profit Before Tax 525.98 414.00 369.83 425.19

Tax -187.77 -106.93 -120.95 -136.66

Net Profit 338.20 307.07 248.88 288.53

Equity capital 149.23 149.23 149.23 149.23

Face value 10.00 10.00 10.00 10.00

EPS 22.66 20.58 16.68 19.34


Ratio Analysis

Particulars FY17A FY18A FY19E FY20E

EPS (Rs.) 79.38 78.48 81.10 88.67EBITDA Margin (%) 10.95% 11.37% 10.45% 10.33%PBT Margin (%) 8.06% 8.48% 7.67% 7.60%PAT Margin (%) 5.65% 5.56% 4.99% 4.96%P/E Ratio (x) 17.76 17.97 17.39 15.90ROE (%) 16.99% 14.69% 13.18% 12.59%ROCE (%) 23.14% 21.49% 19.56% 19.09%Debt Equity Ratio 0.12 0.12 0.14 0.12EV/EBITDA (x) 9.51 9.12 8.74 8.02Book Value (Rs.) 467.17 534.21 615.31 703.98P/BV 3.02 2.64 2.29 2.00

Charts


OUTLOOK AND CONCLUSION

At the current market price of Rs. 1410.05, the stock P/E ratio is at 17.39 x FY19E and 15.90 x FY20E respectively.

Earning per share (EPS) of the company for the earnings for FY19E and FY20E is seen at Rs. 81.10 and Rs. 88.67

respectively.

Net Sales and PAT of the company are expected to grow at a CAGR of 8% and 6% over 2017 to 2020E, respectively.

On the basis of EV/EBITDA, the stock trades at 8.74 x for FY19E and 8.02 x for FY20E.

Price to Book Value of the stock is expected to be at 2.29 x and 2.00 x for FY19E and FY20E respectively.

Hence, we say that, we are Overweight in this particular scrip for Medium to Long term investment.

INDUSTRY OVERVIEW

2017-2018 has been an eventful year overall for the Indian Economy with long awaited nationwide rollout of GST.

Disruptions and anxiety due to perceptions, certain lack of clarity and overall adaptation of HSN based tax rates, though

affected the Business in 2nd/ 3rd quarter, have now been overcome and settled.

While other measures of the Government, namely, the enactment of the Real Estate (Regulation and Development) Act,

2016 (RERA) and implementation of the Insolvency and Bankruptcy Code, 2016 (IBC) shall play a positive role for the

economy over a period of time.

The improvement seen in the Indian Industrial Production (IIP) numbers since last couple of months suggest that the

Indian economy has now moved on a recovery path which is a good indicator. The Indian economy is poised to grow at a

rate of 7% in 2018-2019, after an estimated 6.6% growth in 2017-2018.


Plastic Division:

The Plastic Business has achieved a volume growth of 2% and value growth of 8%. During the financial year 2017-2018

it has achieved total turnover of ` 185,638 lacs as compared to Rs. 172,370 lacs in the previous year.

During the financial year 2017-2018, the Furniture Business recorded a growth of nearly 6% in value terms. The furniture

division sales include the Moulded Furniture business, the Ready Furniture business - which offers a range of over 450

products with a combination of metal chairs/ office chairs manufactured in-house and traded products across all segments

of home and office categories like bedroom, dinning, desking and storage, living and the Mattress business.

In the year gone by, Company has introduced several new products to stay ahead of the curve in the highly competitive

furniture domain, the objective clearly being to provide innovative products which will enhance the offerings and also

improve the top and bottom line of both the Channel Partners and the Company. These innovations were basically

centered around better aesthetics, innovative designs and space-saving attributes.

The new introductions by the Company are well accepted by trade partners and post October, 2017 the Company could

register a volume growth of around 8% over the previous financial year. To keep up the momentum, Company is planning

to invest in the range of differentiated products in all the verticals in the financial year 2018-2019 to fill in product gaps

and bring freshness in the product offerings. The distribution base spread across every district of Country will increase the

visibility quotient to the remotest rural market and this coupled with ability to manage complex supply chain equations at

a lower cost as compared to the industry norms would be its clear “right to win” and will help the division to grow

consistently over double digits in the coming years. The strong network of 40 plus depots and nearly 300 plus sales staff

assisted by a robust SCM system which links the multi locational production facilities to deliver products efficiently

helped to the company in not only enhancing the market penetration further but also improved its timely fill rate to the

general trade, modern trade and E-commerce portals across the country. This would continue to be its focus area in the

coming period.

In the coming year the Company is geared up to improve the indigenization initiative through local sourcing and selective

backward integration especially in the metal, sofa and MDF category of products. The core focus of leveraging visibility

continues through focus on commissioning franchise stores across geographies.

These stores would be showcasing all the 3 verticals and the plan would be to add on 10 FOFOs in addition to the already

existing 44 Nilkamal Home Ideas and Furniture Ideas Stores.

Nilkamal’s focus on 3 verticals i.e. Moulded Furniture, Ready Furniture and Mattress has helped it to develop a unique

business model in the country as it essentially serves the same network of distributors and retailers thus making it easier

for them to source all types of furniture requirements of their customer in the Furniture domain through one major

principal. This in a way is a winning solution for the Channel Partners as this takes care of their aspiration of both top line

growth and profitability. With the visibility equation established, the Company proposes to continue investing in ATL

initiatives like TV advertisement on national channels to increase the brand awareness for all the 3 verticals. Company


believes that this will augment the already strong recall of Nilkamal brand accrued from over 6 Crores household of

Moulded Furniture base build over nearly 3 decades.

Stability in crude prices, strengthening of the currency will help in development of the market for the Company’s products

in short and medium term. However, any adverse fluctuations or uncertainties can be a cause for concern.

Revenues of Material Handling Business for FY 2017-2018 grew by 7% y-o-y, which for joint ventures Nilkamal Bito

Storage Systems Private Limited grew by 22% and for Cambro Nilkamal Private Limited grew by 20%.

In order to improve service delivery times and reduce logistic cost, the Company has enhanced storage capacities at its

Sinnar and Silvassa plants and also setup Mega Warehouses near Auto Hubs in North (Malpura), South (Bangalore) and

West (Vithalapur).

Nilkamal Ltd also investing in machineries to increase its production capacities in Roto and Injection moulding and

moulds of growth segments for wider range of pallets and waste management products based on a focused market

research and product development program to add value to its product offerings, strengthening brand positioning as a

“One Stop Shop for Material Handling Solutions”. Nilkamal was accorded “CLEAN AWARD” by The Economic Times

for Company’s waste management products. The offering of complete intra-logistics solutions would grant a strong

growth in business based on buoyant growth in sectors such as automotive, engineering, fisheries and food processing.

Company’s ‘Go to Market’ through direct sales model, with 400 plus Pan India sales force has been further strengthened

by increased usage of technological customer relationship solutions (CRM Software) integrated with SAP ERP to drive

sales force productivity. The company implemented key account management to deepen customer penetration and capture

a larger share of their purchases in product segments and also started use of data analytics to identify and tap into

expanded markets to broaden customer base. The company had expanded use of BI (Business Intelligence), machine

learning tools to help increase efficiency in warehouse stocking, logistics and accounts receivables management.

Efficiencies in these will directly lead to better cash flows and reduction in related costs.

Lifestyle Furniture, Furnishing and Accessories Division:

Nilkamal constantly live by its values of relentlessly serving the customers by bringing to them, the latest and the best.

With 17 large format retail stores and 11 Shop-in-Shop stores in 14 cities, the brand has a retail space spread of nearly

2.76 lakh square feet. A fully functional website (www.at-home.co.in) and presence across leading online market places

helps fulfill the needs of the digital customer.

During FY18, @home’s year-on-year growth was at 2% (same store sales). The steep GST rate implementation and

changes had an impact on the consumer sentiment at large, but Nilkamal stores still delivered an overall growth compared

to previous year. The business achieved Rs. 21,478 lacs of revenue compared to previous year Rs. 23,294 lacs. Negative

difference in revenue is due to attribution of sales from the Institutional business and Nilkamal E-commerce vertical to

other divisions within the Nilkamal business. In spite of this lower turnover, @home business continued to remain

profitable at corporate level.


The offline furniture market is dominated by the organised players with only a few national organised retail chains. This

structure of the market could see some changes in the medium to long term on account of compliances required under the

GST regime for the un-organised players.

For this financial year, there is a keen focus on store expansion by the ‘franchise’ route. Nilkamal has signed two

franchise stores in Tier 2 cities and a few others are in pipeline. Omni-channel customer experience also occupies an

important space in the brand’s strategy for this financial year. A focus on driving digital engagement and digital influence

shall help drive business, both online and offline. This would also include enhancing the web experience for a customer

and building an assortment specifically for the @home digital customer.

A watch-out for the business in FY19 could be the play by the online marketplaces in the ‘home’ segment. An investment

in the ‘home’ segment is likely to create a conducive market for the online transactions in Tier 2 and Tier 3 cities.

However, this could also help the company gain more e-commerce sale on account of presence across leading market

places.


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


V. Harini Priya M.B.A Diversified No Interest/ Exposure

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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.

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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.

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