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accumulate s chand and company; target of rs 90: prabhudas lilladher

Monday, Feb 24 2020 11:48AM

We maintain our ACCUMULATE rating on S Chand as 1) program 3.0 aimed at improving the working capital efficiency (engaging with quality channel partners, lowering inventory levels & improving the collection cycle) is bearing fruits with pre-tax OCF improving to Rs169mn in 9MFY20 2) cost rationalization program is on track (Rs600-800mn of reduction aimed for FY20E) and 3) sales return of Rs1.4bn for 9MFY20 (in line with historical range) indicates that the aggressive push which resulted in exceptional returns in FY19 is unlikely to be repeated. In addition, New Education Policy (draft already announced in May 2019) will lay foundation for strong runway going ahead as 2nd hand books go out of the system.



Outlook


Given the attractive FCFF yield of 20%, clearly outlined debt reduction plan (FCFF generated will be utilized to pay down debt first) and cheap valuations of 4.4x FY21E and 3.3x FY22E we retain accumulate with a TP of Rs90 (earlier Rs92). We keep our target P/E multiple of 4x unchanged but roll forward our valuation to FY22E as full blown impact of NEP will be witnessed in that year.


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