Premco posted poor result, nothing improved since Vietnam plant being operational; Board recommended Dividend of Rs. 3.00 per share though.
Good time to accumulate or time to move out?
Premco posted poor result, nothing improved since Vietnam plant being operational; Board recommended Dividend of Rs. 3.00 per share though.
Outlook and Valuation (Source ICICI Direct Report Q3 FY17)
Premco has executed an impressive capex programme in Vietnam (total
spend ~| 20 crore) pursuant to its customers preference to develop
Vietnam as their sourcing hub. It was envisaged to be a natural
beneficiary of the Trans Pacific Pact (TPP) with free movement of goods
across the member nations (mainly US). TPP pact as we stand today is
almost void with US, a key partner, pulling out. This will limit the margin
expansion at the consolidated level but will not endanger the sales
growth outlook as its customers are already widespread in Vietnam.
Pursuant to it, we have lowered our margin estimates over FY16-19E.
Premco’s presence in the niche segment coupled with healthy EBITDA
margins has enticed a lot of investor interest thereby leading to steep
price appreciation in the past. However, Premco has, in the past, under
delivered post over promising thereby leading to a correction in stock
price. However, going forward, as market expectations are drying up, we
gain confidence from its lean balance sheet structure and robust return
ratios. On the current asset base, it realises an asset turnover in excess of
2x with normalised EBITDA margins of ~25% thereby realising core
RoICs of ~40%. Therefore, we retain our BUY rating but revise downward
our estimates. Going forward, we expect sales & PAT to grow at a CAGR
of 16.5% & 9.5%, respectively, in FY16-19E. It includes moderation in
EBITDA margin profile (down 330 bps). We now value Premco at | 675,
i.e. 15.0x P/E on FY18E & FY19E average EPS of | 45.0.
Discl: Copied from ICICI Direct Report
## Q4 FY 17 Disappointing Set of Numberspremco global.pdf (1.6 MB)
Fundamentally strong but weak results
- EPS down 34% Y-O-Y
- Revenue down 1.4%
- Net profit at 8.32cr down 34%
- Employee cost up 46% Y-O-Y
Hello …your points are valid and should be discussed with investor relations or management of the co for that matter .
Company has released its annual report. Reasons for margin contraction have been explained. Rupee appreciation is the primary reason for free fall in net profit. Management is confident of achieving 18 to 20% topline growth for FY18. Looks like the story is still intact.
"During the year under review, Company’s revenue from operations stood at Rs. 6,972.40 Lakhs as against Rs. 7,392.87 Lakhs in the previous year, The Company has earned a Net profit after Tax of Rs.985.79 Lakhs as compared to the Net Profit after Tax of Rs.1,265.82 Lakhs during the previous accounting year.
On Consolidated basis, revenue from operations stood at Rs.7,420.60 Lakhs as against Rs.7,352.69 Lakhs in the previous year and Net Profit after Tax stood at Rs.807.15 Lakhs as compared to the Net Profit after Tax of Rs.1,262.23 Lakhs during the previous accounting year. The Company’s EBDIT for the year on standalone basis was at Rs1,866.77 Lakhs as against Rs.2,274.62 Lakhs. The standalone Profit After Tax of the Company Stood at Rs 985.79 Lakhs as against Rs1,265.82 Lakhs.
The earnings were lower mainly on account of Appreciation in Rupee, which appreciated more than 10% in Last quarter resulting in lower realization in Exports Revenue, and loss of Foreign Exchange Forward Premiums. The change in Government MIES benefits (Non-inclusion of Narrow Woven Fabric in MIES list uptil December 31st 2016), also resulted inlower Export Benefits accruing and affecting the profitability.
Since, then the Company has re-worked on its FOREX Hedging Policy and the benefits under MIES scheme have been restored by the Government of India. The Company’s Domestic Operations grew more than 30% to partly offset the loss of revenue to shift of turnover to Premco Global Vietnam. The Company envisages the endeavor to further make inroads to Domestic Supply based on Government of India’s Theme of “Make in India” and GSTroll out from July 1, 2017.
The Company’s Consolidated EBDIT for the year stood at Rs.1,775.92 Lakhs as against Rs.2,271.24 Lakhs, The Consolidated Profit after Tax of the Company Stood at Rs.832.83 Lakhs as against Rs.1,262.44 Lakhs. The reasons as explained in previous paragraph hold good for consolidated
We are happy to report that Company’s overseas Subsidiary viz PREMCO GLOBAL VIETNAM COMPANY LIMITED, has been successful commercialized during the Last Quarter of 2016,
duly completing Phase 1 and Phase 2. The Company Operations have been stabilized and the plant Capacity as envisaged in the Board resolution of April 2015 have been achieved. As the Process of Commercialization, could only be completed in the last quarter of the financial year, the results
subsumed, in the Consolidation, reflect only partial capacity utilization during the FY 2016-17. The Company expects 70% utilization during 2017 and full commercialization from January 2018.
The Management re-iterates its conviction in the expansion of capacities and expects a growth rate of 18% to 20% in the Current Financial Year on a consolidated basis. through increase in turnover, improved penetration in domestic market and strong inroads on export front along with appropriate*restructuring of products and procedures."
Source: Annual Report
kindly share link of annual report also … your write up is very informative
Anyone attending the AGM tomorrow?
**I have attended AGM of Premco Global on July 20 2017. Please note that there is possiblity of communication gap from the actual proceedings and my notes. Investors are advise to do their own due diligence and read the note with the stated limitation. I hold shares of the company and hence my view may be biased. Investors shall do their research.
I also request other valuepickr member attended meeting to provide their view on my notes and let me know in case there is any error/miscommunication from my side.**
Vietnam plant phase I & II is operational. During FY17, profit were affected due to higher rupee, loss on exchange rate on account of loan exteded to subsidiary, one time cost of Rs 2.9 cr to stabilise Vietnam plant. Export decline to primariy due to commecement of Vietnam plant. The company expect 15-20% growth during FY18.
New CEO Shantanu Dey from Mafatlal Industries Joined the company since last 9 months was also present in the meeting.
Marginal Revenue growth to Rs 74.2 Cr in FY17 was main concern. In first quarter 2017, the company completed phase I&II at Vietnam, which is now stabilise. There was operational cost of Rs 2.9 crore which was aborsed during FY17. Sale of license also lost 60-80 lakhs during April-Dec 2016 due to MICE policy. Stronger Rupee from Rs 67 to Rs 64 level during Q4FY17. Depsite all these, all these EBITDA was maintained at higher than 20% level . Other income declined due to lower rexchange gain as against Rs 2.1 Cr. During Q4FY17, the company lost Rs 15 lakhs due to advserse exchange rate.
There were question about lower investment on mutual fund investment. The company replied that MTM gain of Rs 2.5 Cr in FY17 which is would be booked only on sale. Hence, ROI on liquid fund is good.
The company has consolidated capacity of Rs 125-130 Cr at full utilsation. During FY17, it reported Rs 69 Cr sales in India and Rs 6 Cr in Vietnam. Indian capacity utilisation is around 68% currently and Vietnam it is 10-14% during FY17.
During FY18 is expected to reach 45-50 of capacity utilisation at Vietnam. The company has potential to achieve consolidated turnover of Rs 130 Cr (9-10 realisation per mts) at full utilisation at current capacity. The company plan to achieve at the earliest. Indian capacity increased 20% loom capacity by Rs 4 Cr capex. The company would wait first to utilise current capacity before doing further capex.
Fixed cost of Vietnam plant Rs 5 Cr was fully abosed in FY17. Vietnam added at least 45% per cent in Premco group with Rs 5 Cr Capex.Current asset include working capital funding of Rs 9.2 Cr. Vietnam has import duty of 12% of elastic while around 2% effective duty on imported raw material, giving ~10% benefit to Vietnam elastic manufacturer vis import. The company would have 3 years of tax exemption from first year of profit in Vietnam, then next 3 year at around 4%, which would increase gradually to 15% income tax rate. Vietnam has potential to get margin better then India opeation due to modern machine. The company is also in discussion with various other large players opeating in Vietnam and reached very near to get order from another large global brand owner.
Client information/Domestic market
Rupa, Lux etc are being major customer in domestic market. The company has strength in Jaquard which provide superior quality and better margin. Further, innovative input mix, without compromising quality and functionality, also contributed in higher margin for the company. Top 10 customer account for 60% of sale. Q1FY18 is expected be better than last year. Currently the company has around 3 months order. Cutomer in India are increasing in two digit. With GST, organised sector, Premco segment is expected to show better volume growth. The company has set up sales and marketing network with branch in various locations. The company has 17-18 marketing team now. The company plan is trying to add more value added product even in domestic market. Rupa and Lux among top domestic client. In premium end mens segment, the domestic player has 2-3 supplier.
Global Industry size is Rs 68,000 Cr (include textile, sport wear, furniture, tapes etc). The company is looking at only mens innerwear currently. It intend to enter into ladies innerwear market in India which has no real good quality supply. The company is very small and has potential to increase size significantly given the large industry size. Currently Indian player cost of manufacturing elastic is 10-15 cheaper as compared with China players.
While TPP is no more existence, still Vietnam is perferred destination for US based brand owners. None of the company has reduce their production capacity in Vietnam even after TPP agreement is missing.
@dd1474. has extensively covered all the points. Adding a few more.
Having been in the industry for over 30+ years, Premco seems to have expertise in its domain. Even key personnels from Jockey (Page International) get technical inputs from Premco’s founder as he is a veteran in this industry. Based on each and every requirement, they design different products to meet customer expectations. It seems to act as a differentiator for Premco Global.
MIES scheme has been restored by the Government of India. It is likely to increase margins. Because of open policy of the Government, the company might face more competition from international players. But the management stressed that they will be able to sail through such a situation with its products that command higher margins. They enjoy an EBITDA of 28% in an industry that is difficult to operate.
For small companies to scale up and become successful, each and every department should perform in an exceptional manner. A company with an extraordinary sales team but a poor quality product will not succeed. You need a high quality product, management with great execution skills and a stellar sales team to sell these products. They managed to complete Vietnam plant within a span of 9-12 months. Now the key question lies on the ability of its sales and marketing team. If they can convert new brands and bring them to Premco’s client portfolio, then this story could turn out in a different manner.
According to me, domestic demand is never going to be a problem. Key question is capacity utilisation in Vietnam and the ability to grab new clients there. The company strongly believes that Vietnam market is a huge opportunity and it’s the primary reason for expansion. Company has given an estimate of 60% capacity utilisation (Vietnam Plant) during FY18,
Premco considers the following companies as its Key Competitors - Lion Tapes, Spica and Kohinoor (none of them are listed companies)
Clients of Lion Tapes: Dollar, H&M, Rupa, Black Panther, Walmart, Groversons Group, Jockey, Fruit of the Loom, Park Avenue, Hanes, JCPenney, tenor, Omtex. This company supplies elastic for women’s inner wear.
Spica has a manufacturing unit in Vietnam. Will be interesting to see the current margins of these competitors (2016 and 2017). If any one gets data on this, do post it over here.
Every year, they spend atleast 1-2 crores on maintenance capex. They focus on either going for higher technology or for higher capex. Women’s inner wear segment is growing faster than men’s. And there is lack of quality elastic suppliers in India in the women’s segment. But focus for the next 1-2 years is likely to be on the men’s segment as they want to convert sales from existing capacities.
When junior Harjani is doing a good job, I don’t understand the need to get a new CEO on board.
Excellent addition and useful insight. Would have love to give double/triple like to your post !!!
Premco results - key inferences:
Vietnam operations turned around for the first time. This is the first quarter when consol pat is greater than stand alone PAT. double digit Reveneue growth after a long time driven mainly by Vietnam ops. I think operating leverage of Vietnam plant will kick in from now on. New products and customers for indian ops (as suggested in AGM) should help improve revenues and profits of indian ops too. In AGM, it was mentioned of some one-time costs being over. Was that over in FY17 or in Q1FY18 as AGM was after Jun17?
That’s nice catch @chetanb
Net Profit of 3.8L… Although Flat, its not in loss atleast…
Share reacted negatively to the results though… People have missed observing the turnaround of foreign entity
@paresh.sarjani1 Q1 FY18 results are not their on the company website. Also they have decalared balance sheet of as on 30 June 2017. How do you know that Vietnam subsidy made profits.
how did you find realisation per metre. They have not revealed anything regarding amount of production.
through scuttle butt
In AGM company mentioned about Hanes. Please read previous notes to get more understanding. On lighter note, your question appear like cross examination.
No man not like that. Just wanted to know the source so that I don’t miss them next time…