>SALORA INTERNATIONAL (CENTRUM)

Infocom disappoints

■ Revenue falls sharply: Salora International (SIL) reported sharp 48.2% YoY (25.4% QoQ) decline in revenues. This drop was mainly due to 50.4% YoY decline in its Infocom business in addition to 22.7% YoY drop in its consumer electronics division. FY09 sales fell 35.8%
YoY to Rs7.1bn.

■ EBITDA margin turns negative: With revenues plummeting to half the value, SIL’s EBITDA margin fell steeply by 627bp YoY and 338bp QoQ to -2.7%. SIL ended FY09 with a margin of 2.1%. Absolute EBITDA at Rs147mn was down 56.4% YoY. For FY09 it incurred a PAT loss of Rs2.8mn Rs242mn profit in FY08

■ Expect margins to improve: We expect SIL’s margin to improve 40bp in FY10E and FY11E on the back of 7.8% and 18.5% YoY increase in its revenue during the period, respectively. Recovery in its infocom business would primarily drive this growth. We expect its infocom business to register a growth of 9.5% in FY10E and 20.5% in FY11E.

■ Introducing FY11E, Retain Buy: A recovery in SIL’s infocom business and entry of HP products in its portfolio will provide the necessary growth opportunities during the downturn. At CMP, stock trades at 3.6x FY11E EPS of Rs10.2per share. We reiterate Buy on the stock
with target price of Rs42.

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