Singer - Possible turnaround a.k.a. Symphony

Stock Opportunities Untested - but worth a good look
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Am unable to insert a table (appreciate if someone could guide me on how to) and hence attaching a file.

While the operating margins and EBIDTA margins (excl. deferred tax income) indeed appear to be on decreasing trend, it is heartening to note the decreasing trend of Stock in trade as % of sales as well as increasing trend of raw material cost over the last 3 quarters. The latter two would imply that the trading part of the business is gradually coming down as the manufacturing part is increasing (which is evidenced by increasing raw material cost).

I am inclined to believe (my assumption) that the decrease in EBIDTA margin and decrease in sales growth is a result of the company concentrating on improving its manufacturing activities, and Q4 results would throw more clarity on this (results are on Aug 27). Am still waiting and watching.

singer-financials.xlsx (11.1 KB)

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@vinay, nice analysis. We need to keep one thing in mind - Consumer durables is becoming of the major items for Singer. This year’s results should probably peg it at more than 10% of total turnover. Singer - as far as i know, do not have a manufacturing facility for consumer durables, so the stock in trade would decrease at a much lesser pace. Am I correct with the assessment, or is there something i am missing?

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Hi Vinay & Team,

Nice discussion here. I have few questions, if someone can help.

1). What circumstances/practices got the company into BIFR case ?

2). Any history data on the pricing power of sewing machines by singer? and more importantly, what’s the buyer profile of these sewing machines. I mean is it still for domestic use or industrial use by the Page/Kitex kind?

3). The market size estimation has got me thinking that we are missing some critical data here. Reason for such thinking is, even in small town/cities wherever i have seen a sewing machine it’s either a Usha/Singer . Even when i search online, am able to get only Usha/Singer sewing machines. So find it difficult to understand that their market share is only 3-4% of total market. What are we missing here ? Are the industrial users using different brands where these Usha/Singer’s don’t have presence ? But in that case, those industrial users can’t be buying from un-organized segment, maybe import from foreign players ?

4.Statements like below from old mgmt. interview, make me think, they are mainly into domestic usage market and not much into industrial usage. So comparing the total market size vs their size doesn’t present a accurate picture of the opportunity size, in my opinion.

http://articles.economictimes.indiatimes.com/2003-01-19/news/27560861_1_sewing-machines-singer-india-appliances-market

“He attributed the flat growth in Singer’s sewing business to the emergence of ready-made garments, particularly after the opening of Indian economy at the onset of last decade. “These days very few people want to go in for home-made clothes. This is also why domestic sewing machines are not much in demand now,” he said.”

So all in all, i think, for better dissecting the opportunity, we need to separate domestic and industrial market size and see where Singer stands vis a vis the opportunity.

5). Their appliance business is a purely me too business in crowded market without any differentiating factor. So am not very hopeful on that segment being a consistent performer in long term.

Disc: Not invested

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J2EE Professional, fair points. Even I think their plant cannot manufacture other consumer durables. Till last year, both segments are trading activity only and since volumes data is not available, it is difficult to predict how fast (if at all) the trading stock would reduce. The last 3 quarters’ data was only to present a directional trend, which, for the moment, is favourable.

As you rightly mentioned, increase of manufacture of sewing machines would positively impact their profitability. In case they set up a similar business model for consumer durables also, that is outsource the manufacturing , rather then undertake pure trading, the impact on profitability would be more positive.

Actually, I am a bit wary of their re-entering this segment as it is very competitive with larger more well known brands. I feel if they focus on sewing machines only, they would be likely to do better given the industry dynamics stated earlier (largely dupoly, highly unorganised etc) and their brand strength and association with the product.

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@Raj, Let me try to answer some of these. Others pls correct/add where ever you can.

1). Huge Debt and nonviable business strategies. Somehow, they always had huge debt and their less-than prudent capital usage always created problems for their bottomline. There was even management in-fighting i heard. Then when they started venturing out in consumer durables, competition ate them as they did not have enough cash. Debt was their biggest problem.

2). As far as i Know they are in both, domestic and industrial sewing machines.

3). Who said their market share is just 4%?

4). In the same link, they have said that they are entering (2003) industrial sewing machines.

5). Time will tell. Their brand recall is still great. Lets see but.

I hope their capital allocation strategies is better this time around.

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Good questions Raj Panda

However, not all of it can be accurately answered since so less information is publicly available. Many of these are âknown unknownsâ to borrow from another thread ïŠ Will try to put down my thoughts, but there is an element of inference or guessing in it.

1). As per the ICRA rating report, in mid-2000 the company diversified into TVs, VCRs and Fridges, but could not effectively compete with the larger players due to small scale. This diversification plan sowed the seeds for financials to deteriorate, debt to increase and ultimately networth to get eroded. That is why I am wary of them again trying to diversify away from what appears to their core strength.

2). There is no information on consumer and industrial breakup as well as new/replacement demand, which could also have an important bearing. Hence we have to rely on old articles such as put up by you. My reading also indicates that they are certainly into industrial, but no quantative information available. Their website has a category of industrial machines as well.

3). If 90% of the machines are manufactured in Ludhiana and by small scale guys, they would not be expected to advertise/sell on online platforms, which are typically associated with more modern and sophisticated players. That could be a reason why only these names are thrown up.

@J2EE Professional, the 2010 interview of Usha management, indicated that organised players have single-digit market share. Request to please advise as to what is your understanding.

4). The article is more than a decade old and has to be viewed in context after recent developments. In 2012 annual report the management stated that the overall market was growing at less than 5% and in 2013 they stated that the growth was 3%, and I would assume that they are talking of both consumer plus industrial.

5). Agree, but they are one of the largest retailers in Sri Lanka and Bangladesh with 30% plus market share and sell all home appliances. Maybe they have a niche, we donât know.

As I had put in my first post, this is currently more of a fact/data/information gathering mission rather than a recommendation and hence there will be several unfilled gaps. But there is reason to believe that this could turn out to be a good story and hence the effort.

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Sorry, missed out pricing power bit. The Jun-13 annual report states that there was volume growth of 20% and price increase of 6%. No break-up of this nature is available in earlier reports. At best, I would assume that they can pass on the cost increase, but whether they have sustainable pricing power remains to be seen.

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@vinay, what usha management probably referred to was , market share w.r.t unorganized sector (or sector as a whole). As far as i know (by talking to Singer dealers in pune), Singer has around 30% market share - this is w.r.t organized market ofcourse and Usha is their biggest competitior.

Also, as perceived, Singer is more about Sewing machines, but, as We have seen with other Singer companies across south asia, Singer started with sewing machines and graduated to become a multi-brand retailer. This time consumer durables growth could be better managed as the debt is non-existent.

I am still confused with lower EBITA margins though :frowning:

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Had a quick word with the CS (Ashish Srivastava). He was very guarded with his responses and was profoundly requesting me to wait till the quarter’s results are out, citing his busy schedule and his apprehension that unwittingly he might divulge some price sensitive information. The guy seemed to be very easy going and co0operating.

he answered in yes, when I asked him if the jammu’s factory has started working in full swing. I questioned him why the EBITA margins are less. He said its a little too technical for him for said that in the coming quarters it will keep on improving. I asked him that the balance sheet makes Singer India look like a trading company and he said earlier it was true but now this perception should change in the coming few quarters.Consumer durables manufacturing is being outsourced at the moment.

He said Singer india is both into industrial and retail sewing machines, but latter dominating as of now. They have recently entered industrial sewing machines and the thrust will be on increasing the share of industrial sewing machines.

The guy was literally whispering when answering questions. He very politely asked me to call after the results were declared so that even he could answer the questions without any hesitation.

Guys, can we compile a list of questions that we could ask Singer India’s CS?

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Dear J2EE, Excellent to establish contact with the management as they would be the best source of information. Please find below a list of queries / clarifications which would help understand the business better. I can understand if all of them cannot be discussed in detail with the CS. Request boarders to post queries if any are missed and a final list can be compiled which will aid J2EE in his discussions.

A. BACKGROUND:

1). What were the exact circumstances that led to the company to become a BIFR case? If it was entry into segments where the company could not compete with larger players, then how different is the current entry into consumer durables space this time? What are the drivers for the company to succeed this time? Was the management/owners same pre-BIFR?

2). What is the reason for venturing into consumer durables, which is a much more crowded market as compared to sewing machines, where the company enjoys much higher brand strength.

3). Any BIFR litigation pending? Whether all unsecured and statutory dues are settled? If not, what are the pending claims against the company and how much has the company already provided against these claims?

B. FINANCIALS:

4). What is the remaining amount of income from deferred tax asset yet to be realised and by which year would it be fully realised?

5). Is the company a full tax paying company excluding the effect of the above?

6). What are the following figures for 2012, 2013 and 2014 (if possible):

a. Value of Retail sales and Industrial sales. What will be the proportion going forward?

b. Value of new sewing machines and replacement demand (for industrial machines). Management outlook on the same.

c. Number of sewing machines sold to Retail and Industrial sectors

d. Margins for retail and industrial sales

e. Domestic and overseas sales, and management expectation on future trends

f. Margins from domestic and overseas sales

g. Price increases taken in the past and whether the company has pricing power

7). Reason for decreasing trend of sales growth from 31% in FY12, 26% in FY13 and on track to achieve 20% in FY14. What will be the impact of restarting Jammu plant on sales? What annual growth does the management envisage over the medium to long term?

8). For 2014, what was the number and value of machines sold under trading activity and manufacturing? Within manufacturing, how much was self manufactured and how much was outsourced? What are the management expectation of trends in 2015 and beyond.

9). What is the capacity of the Jammu plant at peak operations and is it sufficient to meet demand?

10). Is the royalty payment to the parent capped at 1% of sales? Are there any plans to increase this going forward?

C. MARKET

11). Overall outlook for the sewing machine sector and the company in particular â size of the market, growth of the sector, contribution of unorganised players, trend of shift from unorganised to organised, why should the shift continue in future?

12). Who are the major customers for industrial machines and what is their contribution to the companyâs revenues?

13). Competition â how many organised players, market share, sales and profits of main ones if known.

14). Are competitors different in retail category and industrial category? If so, then above information for industrial category also.

15). How many contract manufacturers are there for the company? What are the activities carried out by the contract manufacturers and what is the role of Singer? Who looks at quality control, purchasing, etc.

16). What is the role of the parent / group companies in Singer Indiaâs operations?

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Results out. Very good results. Sales up 37% YoY, net profits increased 21% YoY (not strictly comparable though). QoQ revenues are up by 1% but EBITA margins has also improved. A very important thing to note is that historically June quarter sales are lower than Mar quarter sales, but this year June quarter sales are even better than Mar quarter. Secondly, the EBITA margins have shown good improvement. This is in line with what the Singer’s CS was saying.

What’s your take guys?

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Please refer attached file for updated financials

The sales growth for Q4 is certainly enthusing at 37.4% resulting in sales growth of 23.7% for the entire year.

However, upon breaking it down, one can see that the purchase of stock in trade has shown an increase of 35.3% in Q4 compared to a decreasing trend (of growth) in the previous 3 quarters. My guess is that manufacturing activity has not yet picked up and hence business still remains primarily trading.

EBIDTA margin is not very encouraging, more so since it is accompanied by a decrease in growth in Raw Material Cost. My understanding is that increase in raw material cost is indicative of increasing manufacturing operations, and going by this, it seems that the company has not been able to manufacture as much in Q4 as in previous quarters.

Perhaps we could now have a more free discussion with the management?

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Please refer attached file for updated financials

The sales growth for Q4 is certainly enthusing at 37.4% resulting in sales growth of 23.7% for the entire year.

However, upon breaking it down, one can see that the purchase of stock in trade has shown an increase of 35.3% in Q4 compared to a decreasing trend (of growth) in the previous 3 quarters. My guess is that manufacturing activity has not yet picked up and hence business still remains primarily trading.

EBIDTA margin is not very encouraging, more so since it is accompanied by a decrease in growth in Raw Material Cost. My understanding is that increase in raw material cost is indicative of increasing manufacturing operations, and going by this, it seems that the company has not been able to manufacture as much in Q4 as in previous quarters.

Perhaps we could now have a more free discussion with the management?

singer-financials.xlsx (12 KB)

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Actually increasing stock in trade and decreasing raw material cost as percentage of sales, probably indicate that in this quarter there was more of consumer durable sales w.r.t sewing machines sales QoQ. Probably that is also a reason, why this time around there is an aberration that June Quarter sales are more than March quarter sales.

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The post answers some of the questions raised earlier. However I am not able to decide whether this is reason enough to invest. I feel if the company is serious, it should bring out a presentation/update on its website giving more details other than financial. Or maybe appear in the media outlining their plans. It will certainly be better than the company secretary talking to individuals on piecemeal basis, although, in the absence of anything else, it helps to some extent.

1 Like
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@ Vinay:

The CS may face problem in selective disclosure. In fact, if any other member is board talk with investor and pass on this information, it can still be excused as they may not be aware of insider information, but CS can not take that excuse. The selective disclosure of information is not permitted by SEBI and if some one complaint to SEBI, this CS may face music !!!

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@vinay, you are right about the presentation part, but small caps hardly do that. We can always present this idea to the company though.

@dhiraj: i saw the link that vinay put. I did not see any “selective” disclosure of information. I also had a word with the CS a few days back, just before the results, and he was very apprehensive to share too much of information citing that, though he gave enough information. He is also responsible for the legal department in singer so he should be aware of, legal implications if any. Atleast he is better than those guys who hand up the phone once they come to know its an investor who’s calling :slight_smile:

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The comapny maybe showing good profits and return ratios… but the cash flows are quite erratic… maybe there is more in the company than what meets the eye… its not a simple investment decision.

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The comapny maybe showing good profits and return ratios… but the cash flows are quite erratic… maybe there is more in the company than what meets the eye… its not a simple investment decision.

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the company’s profits and return rations are good… but the cash flows are very erratic… is there more than meets the eye?