After guiding for 3-5 per cent volume growth at the beginning of FY20, the company has now revised its guidance to a marginal decline.
Though revenues declined sharply, higher gross margins helped improve operating performance. Margin expansion was on account of lower raw material costs, higher foreign exchange realisation, and cost savings from its captive black plant.
Analysts believe gross margin gains are sustainable, as long as raw material costs remain at current levels. The management has maintained that margins will fall in the band of 25-28 per cent, despite weak demand outlook and higher marketing spend.
Despite the near-term worries, brokerages are positive on the company’s prospects. Analysts at Axis Capital say the company has scope to increase its market share in the OHT segment.
They also believe the company will be able to sustain its margin profile on improving product mix and backward integration. High return ratios and free cash flow generation add to the appeal of the business.
Though target prices of Rs 900 translate into a gain of 7 per cent, investors should await meaningful volume improvement, given the demand headwinds, before considering the stock.