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Monday, August 10, 2009

Salora International Ltd:What to be done with it?

Scripscan:Salora International Ltd
Traded in:Nse-bse

Story:Salora International (SIL) reported asharp 47.4% YoY decline (down 20.7% QoQ) in revenues to Rs1.06bn. This drop was on account of 50.7% YoY slidein its Infocom business and 15.5% YoY decline in the consumer electronics division.With revenues nearlyhalved YoY, SIL’s EBITDA margin turned negative with a steep 761bp YoY and 64bp QoQ fall to -3.4%. Thecompany reported an EBITDA loss of Rs36mn vs ourestimate of Rs20mn profit for the quarter, primarily due to the poor performance in its Infocom business.We have cut revenues by 7.0% for FY10E and by 13% for FY11E. Thisexplains the 28.1% fall in EBITDA and 49.7% in PAT for FY10E. For FY11E, margin is expected to recover on theback of 12.0% recovery in Infocom revenue. At CMP thestock trades at 10.1x FY11E EPS of Rs3.9. We think thestock is fairly valued and do not see much upside from current levels; thus the downgrade to Hold from Buy.Pressure on revenue and continued poor performance in its infocom business has led us to cut our revenue and PAT estimates by 7.0% and 49.7% for FY10E, respectively. However we expect margin recovery in FY11E with its infocom business expected to register 12.0% growth At CMP the stock trades at 10.1x FY11E EPS of Rs3.9/share. We think the stock is fairly valued and do not see much upside from current levels. This has led us to downgrade the stock to Hold from Buy.

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