Friday, May 20, 2011

Q411 Earnings Review - Royal Ceramics PLC (RCL)- bartleetstock

Net Revenue up 29.2% YoY to LKR 5,751mn from LKR 4,451mn
We believe the growth in volumes to be the key catalyst that led to top line growth. The prices have remained constant for both its Tile and Sanitary ware segment; indicating that the growth in volumes drove revenue in FY 2011. We expect a Net Revenue growth of 19.1% to LKR 6,848mn (previous estimate- LKR 7,460mn) for FY 2012E and a growth of 20.9% to LKR 8,279mn for FY 2013E, further steered by increased volumes.

Flat Gross Profit Margins
RCL achieved a Gross Profit growth of 25.4% to LKR 2,656mn in FY 2011. We expect RCL’s Gross Profit to grow by 17.4% YoY to LKR 3,120mn (previous estimate- LKR 3,446mn) in FY 2012E and by 22.8% to LKR 3,828 in FY 2013E. Gross Profit margins are expected to be steady at 45.6% for FY 2012E and 46.2% for FY 2013E.

EBIT growth of 27.2% in FY 2011 to LKR 1,579mn (previous estimate – LKR 1,560mn)
EBIT is adjusted for non-recurring gains of LKR 164mn in FY 2011. We expect an EBIT growth of 5.5% to LKR 1,665mn (previous estimate-LKR 1,875mn) in FY 2012E and 25.2% to LKR 2,085mn in FY 2013E. We believe the growth in volumes coupled with cost savings will aid in EBIT growth.

Valuation – Attractive at the current price of LKR 155.60; upside potential of 11.8%
Based on our new estimates we have arrived at a target price of LKR 173.93(previous estimate-LKR 165.28). Our valuations are based on a WACC of ~ 9.4% and terminal growth of 3.0%. The WACC is based on a debt to equity of 50%, beta of 0.91(based on ASPI vs. RCL stock price movements), risk free rate of 7.3% and an equity risk premium of 4.0%. 



BMS Equity Research Team | Bartleet Mallory Stockbrokers

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