More than the qtrly results I am betting on Lokesh Harjani the ED who took over charge in 2011.
As founder Ashok who founded the co way back in 60s doesnt has any children the future it seems is secure in hand of Lokesh.
In small cos the bet is on Jockey more then anything else.Lokesh is born in US and trained as a lawyer.He is also several patent holders implying original thinking and intelligence.He being a US citizen NRI who speaks the same accented language follows the same norms and culture as that of his customers like Hanes,Fruit,Gap and so many other who are mostly US cos thus increasing their comfort level.This is obvious from the improvements in performance ever since Lokesh came in.Inci
dentally world over Sindhi community has an great edge due to their experience n networking in field of textiles.
Otherwise opp size is massive for textiles and related cos as world is now appreciating the prowess of Indian cos in this sector namely skilled yet low cost manpower,lowering power costs,lowering RM cost,increasing indigenization of RM and processes,upgrading of machines,depreciated assets,consistent quality,scale,long term relations with abovementioned OEMs running over few decades.
Now judicious move of moving to Vietnam the textile capital of the world marks the co moving to next orbit implying increasing of opp size.Vietnam opens Premco to new makt due to DTA agreement Vietnam has with US,Europe,ASEAN.
This is still an undiscovered gem with zero instl holding operatimg with 200 cr mktcap, zero debt,ROCE of 44%,good growth rate,massive opp size,good promoters with execution waiting for rerated.Imagine where the co can go when instt investors move in.
Thanks @Vivek_6954 for the reply.
I agree the return ratios are too good.
Is it not a commodity play with very good tailwinds mainly bec of crude/rubber.
What is the Moat here?
It is still a microcap and can grow to great heights.
I think the return ratios are good because of the historical costs that its assets are held at - this is a company that was founded in the 1960s. If my grand father had bought an apartment in south mumbai, my ROCE on rent today would be in excess of 100 % +
What I would be far more concerned about is their incremental ROCE in India for their expansion and for vietnam. it’s a must for us to get the latter’s numbers too.
Also, they seem to have no second line - there’s no one whos earning above Rs. 10 lakhs in the company - it’s run literally like a proprietorship
when you are paying 15-20x earnings sustainability of these have to be thought of.
Even bigger concern is lack of timely disclosures from the mgmt even on very imp issues like expansion etc. and sales doesn’t seem to be growing at decent rate which is must for a micro cap and the way the price is moving up gives me scary feelings regarding sustainability of all this.
vivek - I hold premco but I can’t be in denial about the risks - I think they are doing a good job but am worried about the sustainability. Does not mean that I do not buy stocks at all
Current valuation become 18 p/e ( mkt become creazzy). I was trying to catch the train till 430 but not able to catch.
The valuation goes from 11 to 18 p/e in just 1 month. So don’t seen any steam left in this counter.
Need to wait for some correction and reasonable valuation at 15 p/e
The max p/e of B2B business can reach up to 30-35 as per the historic analysis. if premco reach to 25-30 in this year or next year than nothing left except real growth. 18 to 25 == 50% steam left so far as per my calculation for next 2-3 year prospect.
AR for 2015 is out.Couple of questions regarding the same, Can somebody help?
There is mentioning of 2.29% holding by Mutual Funds, but I am not able to see any MF holding in the shareholding pattern on Valueresearchonline
2.CEO and COO are mentioned- Devendra Kumar Jain and Bhupinder Singh Respectively, but I could not find these people when I search on Linked and other platforms
In stock market all time high level doesn’t matter compare to which price u bought. It all depends on situation where you enter into that counter.
As Nifty down from 8300 to 7800 means Nifty P/E it self down from 24 - 22. So market relatively down all the stocks which reach to high valuation and normalize the fact with moderate growth for FY16
Now market is not in good mood to give high valuation for any stock. So its good time to enter and buy qlty stocks for 3-5 yrs horizon. There is no change in fundamental of Premco & it’s business model.
Key points discussed shared in AGM held in Mumbai on September 1 2015:
CFO explained about qualification on related party borrowing. He said that the company has received an export order which resulted in higher working capital requirement and the order was expected to be executed in short time. It would have been difficult to arrange the funds from banks etc at such a short notice and decided to borrow from related parties. The funds were paid back. They acknowledge that it was an error and assured that in future they shall not face such issue in view of extended limit with working capital banker.
The current capacity utilisation is around 80%.
Currently nearly 60-70% exports of the company are to Vietnam. The company has faced capacity constraint and decided to service export market. Once Vietnam capacity is operational, the Indian capacity would be utilised more for domestic market. In the current quarter, company expect significant jump in domestic sales. FY16 topline the company give a very large range of Rs 85-100 Cr sales. Vietnam plant would take around 6-8 months for completion. The company internal target is to start production by April 1 2016, and in case every thing work as per plan, the completion date may be preponed.
Market size: The company compete on superior quality of product. The CFO said that in last 5 years, the company increased sales from 20-73 Cr. He think that company can maintain same growth rate in next 3-4 years. In the chairman speech, although Mr. Ashok indicated growth rate of 10-15% YOY for the current year, which does not match with the CFO projection. However, Mr. Ashok appears to be more conservative in his approach then CFO and would not be personally suprise if CFO figures are translated in reality.
There was concern about 15% stake being given to Mr. Sushil Rajwani. The CFO said that the company association with Mr. Rajwani is very long and they are comfortable with Mr. Rajwani being the partner. They are looking at possibility to induct in Premco Board Mr. Rajwani who in their opinion expert in this business. There were some tax and local regulatory issues which could be best addressed by having associate like Mr. Rajwani.
Product mix: Currently 90% of company sales is Woven elastic while 10% if knitted elastic. Of Rs 67 Cr sales in FY15, nearly 62 Cr was woven elastic and balance 5 Cr was knitted elastic fabric.
Investment in MF: The company has Rs 10 cr investment in MF. There was concern about investment in equity and equity related mutual fund by some investor. The CFO explained that only 30% of MF investment was equity linked and balance was in debt/liquid fund. The 30% investment in equity was also to maximise return from investment. He also suggested that the company is borrowing cost is around 10-12% while debt fund yields around 9-10%. Hence, by investing in equity funds, he intends to at least cover for cost of borrowing.
The contribution margin is depend on thickness of elastic tap. During FY15, realisation per mt of elastic increased from ~Rs 6 /mt to Rs 7-7.5/ mts. In Vietnam, they expect realisation of around Rs 8-9/mt. A 1 rupee increase in realisation tranlsate in 2 Cr increase in net profit annually. The company has policy to hedge all its receivable and does not intend to gain from forex movement.
Investment in Vietnam plant: On completion Vietnam plant would have 6 Cr Mts p.a. capacity which is around 50% of existing company capacity. In phase I,the company invested USD 1 million (~ Rs 6.5 Cr).From first phase, the company expect to achieve peak sales of Rs 25-30 Cr.(Realisation of Rs 8-10 / mts). Further, in order to achieve this sales, the company would need working capital of around 20-25 Cr over 2-3 years.
There was query about change in raw material mix and impact on same on margin. That query was answered at the end by Mr. Lokesh. He said that over past few years, the company has dones various operational development which allows it to replace nylon (expensive input) with finer counts polyester (cheaper input) without affecting quality. Globally, there has been trend to use more polyester input driven elastic. Mr, Lokesh expect same trend to come to India over a period of time. While the competitor would be able to catch -up with increased use of polyester, it would take at least 2-3 years time which give unique advantage to Premco in local market.
Premco supplies to most of hosiery producer like Lux, Doallar, Amul in India. Page Industries in India have their own elastic plant and have very small quantity purchased in which Premco also have tiny share. However, they do exports to Hanes and also to Jockey international in export market.
In summary, we can expect continued growth in sales and maintained margin in FY16 for Premco Global. Vietnam plant operationalisation would be key moniterable event for the company.
Other valuepickr member may also submit their view.
Thanks
Discl: I hold shares of the company and my views may be biased.
From Annual report: 1. Company has accepted deposit from relatives of Director& Associate Enterprise amounting to Rs. 487.00 Lacs in contravention with the provision of Section 73 to 76 of the Companies Act, 2013. The same has been fully repaid within the current year and the outstanding balance as on 31st March 2015 is Rs. NIL
Why would the company not be complying with requirements of Companies Act and RBI rules for accepting deposits?
2. The Company has appointed Company Secretary on 30th March 2015 and could not complete the formalities of her appointment as she left the services effective from 8th April 2015.
Does it mean the Company secretary left the job in 9 days?
I am not able to undersetand why their margins are a full 1500 bps higher than their next nearest competitor which incidentally also has a plant in the same state, purchases the same RM and exports to hanes too.
Gross margins look comparable but premco’s overheads and asset turns seem far superior. Would you know if they run more shifts, automate a larger number of processes etc.
I am invested but am looking to get this answered.
@varadharajan
Partially about high margin, nothing per se mentioned in AGM expect of superior input mix in favour of low cost polyester replacing high cost nylone, some light is thrown in page 10 of Annual report FY15. In point (iii) about R&D, the company did covered about high speed muller machines. I enclosing link of annual report http://www.premcoglobal.com/reports/PREMCO-GLOBAL-LTD-ANNUAL-REPORT-2015.pdf
Also, export realisation are better for the company as compared with domestic realisation + export benefits. Hence, we shall also compared extent of exports between competitor (mostly comparable being SPICA).
@saras
The first in note partially provide management view point on qualification which should not have taken place at the first place. But that was explanation, CFO provided in AGM. Upto each of us, how we interpret that.
The CS is now appointed. You are correct that one CS left in 8 days as mentioned in AR. Personally, I may contribute it to be not comfortable with new role and set-up. The New CS HARSHA KAUR AJIT SINGH HOTSINGHANI has joined from June 22, 2015 and currently continue to be with the company which is more than 2 months so to say
