**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.