HIMATSINGKA SEIDE Uday Shanbhag Value Investors Meet November
HIMATSINGKA SEIDE Uday Shanbhag Value Investors Meet – November 2019
About The Company ■ 34 year old promoter managed company in the area of bed & bath fabrics & silk fabrics ■ Started as a exporter of silk fabrics, was one of the largest in India but this was a small niche business with limited growth opportunities ■ Around 2005 the company ventured into cotton fabrics in the bed and bath area ■ In 2007& 2008 the company started buying brands (Bellora) or licenses of brands in the bed & bath space (Calvin Klein Home, Barbara Berry) ■ Over the next decade portfolio of brands sold thru this mode has expanded significantly
Brands Owned/ Licensed ■ Licensed Brands – – – – Calvin Klein Home Tommy Hilfiger Home Kate Spade Barbara Berry Waverly Royal Velvet Copperfit ■ Owned Brands – – Giuseppe Bellora Atmosphere Himeya Homegrown Cotton, Pimacott (DNA tagged varieties of cotton)
Textile Value Chain & Strategy Benefits ■ In the textile value chain the highest value is captured in the fabric design & processing stage at a technical level and by the final brand at a financial level ■ Himatsingka is the only Indian textile exporter, that is integrated across spinning, fabric design, fabric weaving and in addition owns and distributes its own brands at an international level ■ 80% of sales are concentrated in North America ■ Currently sales from its own brands have increased from nil in 2007 -08 to 84% of sales in 2018 -19
Strategy Benefits…. 10 year Financial Performance Sales EBITDA Net Profit 2900 800 2 618 2600 2 138 2 028 2000 1 943 1 890 1 689 1 059 886 800 50 46 -24 2008 1 233 1 019 -74 2009 146 84 12 2010 89 33 160 188 57 63 2014 202 95 300 200 182 202 197 125 100 0 -17 2011 500 451 298 1 429 1400 546 381 1700 1100 600 2 249 2300 700 -100 2012 2015 2016 2017 2018 2019 Strategy has resulted in revenue CAGR of 11% & EBITDA CAGR of 24% since 2008
Strategy Benefits…. ■ Much higher EBIT margins than competition – Trident and Welspun are also integrated producers at similar or larger scale so difference in margin would be ensuing from either product mix or pricing power due to brand ownership ■ Lower volatility in margins ■ Potentially lesser lumpiness in revenues and greater scalability
Scaling up… ■ Company has in the last 4 years done 3 major capex projects with an outlay of 1300 cr, more than doubling fixed asset base. They have set up – A Brownfield bedding project enhancing capacity from 25 MMPA to 61 MMPA (completed in 2017) – Greenfield backward integration spinning project adding 2. 11 lakh spindles for yarn (completed in 2018) – Greenfield 25000 TPA terry towel project (production commenced October 2019 ■ One of the largest integrated plants in bed & bath space ■ Gearing which has increased due to these projects should gradually decrease now and enhanced capacity coupled with pricing power from multiple brands acquired should improve market position
Brief Financials - P&L Ac Sales Expenses Operating Profit OPM % Other Income Interest Depreciation Profit before tax Tax % Net Profit Net Margin EPS in Rs Dividend Payout % Mar-15 1, 943 1, 741 202 10% 21 87 45 91 -3% 95 5% 9. 27 21% Mar-16 1, 890 1, 592 298 16% 18 95 67 154 19% 125 7% 12. 72 20% Mar-17 2, 138 1, 758 381 18% 13 96 58 239 24% 182 9% 18. 5 14% Mar-18 2, 249 1, 798 451 20% 18 107 72 290 31% 202 9% 20. 48 12% Mar-19 6 Mts FY 20 Annualized 2, 618 1, 283 2566 2, 071 1, 076 2152 546 207 414 21% 16% 37 14 28 166 90 180 109 53 106 308 133 266 36% 41% 197 79 158 8% 6% 6% 19. 99 8. 06 16. 12 25% *All Amounts in crores • PAT Margins have come under pressure to to increased interest & depreciation costs over the last 2 years. • 6 months PAT is also impacted by lower other income (14 cr in H 120 against 52 cr in H 119)
Brief Financials - Balance Sheet Share Capital Reserves Borrowings Other Liabilities Total Liabilities Fixed Assets CWIP Investments Other Assets Total Assets Mar-15 49 756 460 2, 021 1, 058 46 0 916 2, 021 Mar-16 49 840 1, 007 302 2, 199 1, 012 44 48 1, 096 2, 199 Mar-17 49 1, 018 1, 407 603 3, 078 1, 271 113 0 1, 693 3, 078 Mar-18 49 1, 178 2, 255 736 4, 219 2, 235 32 126 1, 826 4, 219 Mar-19 49 1, 372 2, 790 994 5, 205 2, 382 634 123 2, 066 5, 205 • Increase in fixed assets broadly mirrors increase in borrowings • Increase in CWIP due to ongoing projects, which will move to fixed assets in FY 20
Brief Financials - Key Ratios Mar-15 Mar-16 Mar-17 Mar-18 Mar-19 Gearing (gross debt) 0. 94 1. 13 1. 32 1. 84 1. 96 Cost of debt 12% 9% 7% 5% 6% ROCE % 11% 14% 15% 13% 12% ROE % 12% 14% 17% 16% 14% 228 181 186 19 478 Cash from Operating Activity • Gearing increased sharply in last 2 years (neat gearing in FY 19 approx. 1. 7 times) • However cost of debt is low at 6% due to TUFS benefits • ROCE & ROE are low due to higher interest costs which should correct in 1 -2 years • However cash from operations has been positive throughout and has increased as capacities come upstream which is a big plus
Investment Rationale ■ Company has done the hard work of acquiring brand licenses, setting up distribution networks, supply chain in the USA over the large decade. The benefits of the same will ensure in the coming 4 -5 years ■ While current capacities have been utilized in the bed segment, bath has the same target segments so no additional setup is required leading to potentially extensive cross selling opportunities ■ Sales are currently dominated by North America (80% of sales), management has plans to focus on Europe which is potentially a large market for future ■ Gearing is around 2 times which is a key overhang on the stock, with all projects on stream and no fresh capex on anvil, management has indicated that debt reduction is a key priority ■ Currently company is at bottom of capital cycle, so long as there are no major setbacks in production, sharp improvement in financials is highly probable
Valuation rationale Market cap CMP (26 -11 -19) 52 wk H/L Book value Div Yield 1415 cr 133 281/121 144 3. 48 ■ Company is trading at PE of close to 7 times, which is both far below value and below the past & potential growth rate in profits. – In the last 5 years average PE has been 17 times, while currently it is less than half of that – Profit growth is over the medium term likely to be higher than what it has been in last 5 years – Cash flow generation has always been strong and the same should assuage any concerns on debt levels or servicing ■ It is trading at book value which gives substantial margin of safety ■ Dividend yield is 3. 5%
35 400 30 350 25 300 20 250 15 200 10 150 5 100 0 Date 450 Close Price PE Multiple Expon. (PE Multiple) Oct-19 Sep-19 Aug-19 Jul-19 Jun-19 May-19 Apr-19 Mar-19 Feb-19 Jan-19 Dec-18 Nov-18 Oct-18 Aug-18 Jul-18 Jun-18 May-18 Apr-18 Feb-18 Jan-18 Dec-17 Nov-17 Oct-17 Sep-17 Aug-17 Jul-17 Jun-17 May-17 Apr-17 Mar-17 Feb-17 Jan-17 Dec-16 Nov-16 Oct-16 Sep-16 Aug-16 Jul-16 Jun-16 May-16 Apr-16 Mar-16 Feb-16 Jan-16 Dec-15 Valuations Share price Vs PE Multiple
Risks ■ Debt levels are high - 2 times gross at gross levels and 1. 8 at net levels – Cost of debt is low as mostly TUFS debt ■ Indian retail business, Atmosphere, has not picked up even after a decade of operations ■ European business has been an underperformer – Between Indian retail & European operations there is a loss of 14 -15 crores per quarter in Q 1 of FY 20 ■ Royalty for use of brands ■ Goodwill on balance sheet
Summarizing ■ Stable, differentiated business with good management ■ Business capital cycle at a trough with good improvement expected in next 1 -2 years ■ At current valuations there is good margin of safety, on historical valuations as well as rations such as book value and dividend yield
THANK YOU
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