I had initiated coverage on Mallcom (India) on January 2, 2016 with a buy recommendation for long-term. There has been deep carnage in global markets for YTD16 and the NIFTY index has declined by nearly 11% for the year. Mallcom (India) has not been spared with the stock correcting by 23% since recommendation.
However, I remain bullish on the stock for the long-term and I maintain an “Attractive Buy” rating for the stock. Mallcom (India) released 3Q16 results today and this article discusses the results and the key positives that I see in the numbers.
For 3Q16, Mallcom (India) reported revenue of INR66.4 Crore as compared to revenue of INR70.3 Crore for 3Q15. While there has been a marginal decline in revenue, I must point out that the global economy remains weak and the performance can be considered to be strong from that perspective.
At a net profit level, Mallcom (India) reported profit of INR2.5 Crore for 3Q16 as compared to net profit of INR2.0 Crore for 3Q15. Therefore, the company’s net profit margin has expanded with 3Q16 EPS coming at INR4.0 as compared to 3Q15 EPS of INR3.23.
Further, for the first nine months of FY16, the company has reported EPS of INR11.18 as compared to INR10.0 for the first nine months of FY15. Considering an annualized EPS, Mallcom (India) is likely to report FY16 EPS of INR14.9. Therefore, Mallcom (India) is trading at 9.9 times March 2016 EPS and the valuations are certainly attractive.
I want to focus on one point that will be the key growth trigger in the long-term for Mallcom (India). The chart below shows the company’s revenue contribution from India and outside India for 3Q16 as compared to 3Q15.
It is clear that Mallcom (India) has been focused on increasing market share in India and this is a good strategy from a long-term perspective. India will be the fastest growing economy in the world (overtaking China) and the market potential is huge. Even for the nine month period, the revenue contribution from India has been 21.7% as compared to 15.1% for the prior year comparable period.
Therefore, the company is headed in the right direction and I believe that once global growth stabilizes, Mallcom (India) will witness strong revenue, EBITDA and net profit growth. With the stock available at cheap forward valuations, investors can consider exposure with a long-term investment horizon.
Note: The article is not a research report but assimilation of information available on public domain and it should not be treated as a research report.
Registration status with SEBI: I am not registered with SEBI under the (Research Analyst) regulations 2014 and as per clarifications provided by SEBI: “Any person who makes recommendation or offers an opinion concerning securities or public offers only through public media is not required to obtain registration as research analyst under RA Regulations”
Disclosure: It is safe to assume that I have long-term positions in the stock discussed. Investors should carefully do their own research and verify points discussed before investing.
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