The company has a strong management team with an average experience of 20 years in the textile industry. While Scotts caters to some well-known clients in the industry and its long-standing relationship with Best Seller is a positive, the key risk is the high revenue concentration (56 per cent of revenues from Best Seller alone). The top five clients formed 78 per cent of its revenues in FY12. Also, the company derives 76 per cent of its revenues from Europe and hence may get impacted by the slow macro growth in the region. While Scotts is likely to get the benefit of backward integration post commissioning of its unit in Kolhapur, any delay in this will adversely impact Scotts’ financials.
The company had reported net sales of Rs 500 crore and net profit of Rs 84 crore in FY12. However, adjusting the one-time gain on sale of investment (of Rs 59.5 crore), the adjusted net profit stood at Rs 25 crore, a fall of 29.7 per cent compared to FY11. Further, the net profit growth has been pretty lumpy since FY08, which limits earnings visibility.