Singer India is a 75% subsidiary of Singer India BV Netherlands. It is a part of Singer Asia Ltd. (http://www.singerasia.com/inpages/corporate/overview.html) which also owns profitable operating subsidiaries in Sri Lanka, Pakistan, Bangladesh and Thailand. The group appears to have good pedigree going by their board of directors and senior management team. The current CEO of Singer India, Rajeev Bajaj, has been with the group for 25 years and has been elevated across various levels and is the CEO since Jan 2012.
The company was declared a sick company in 2008 and entered BIFR. Since then a scheme of rehabilitation was sanctioned in April 2008 and was successfully implemented. The company’s networth turned positive in 2011-12 and was discharged from BIFR in Feb 2013. The rehabilitation scheme included one time settlement with the secured creditors (Consortium of Banks), reduction of existing capital against accumulated losses, infusion of new capital by the Promoters and remission of a portion of other unsecured liabilities including external commercial borrowings from the Promoters. The promoters converted 10% of their outstanding ECB into equity at FV of Rs 10 and also infused additional funds for working capital purposes.
The company has plants in Jammu which were recently re-opened in July 2013 after closure for 3-4 years.
The reason for starting to look at this company is the apparent turnaround in sales with growth of 31% in FY12, 26% in FY13 and on track to achieve 20% in FY14. The company is mainly a trading entity still as its plant has been closed. But restarting the plant and re-initiating its contract manufacturing (which contributed in large part to the sales in earlier years) could present a case for investment, though it is early days still. Recent stock price action could indicate informed buying and better prospects ahead.
The brand has very strong recall no doubt. As per FY13 annual report (year ending June) bulk of the sales are from sewing machines and a small portion from small home appliances. Sewing machine volumes grew by 20% in FY13 and other appliances by 318% over a small base. Price inflation was 6% contributing to the 26% growth in sales turnover. Overall the sewing machines market is growing at 3% (source company annual report) but organised players are very few and taking market share away from unorganised.
Am not an accounting expert so am a bit unclear on this issue. The company accounted for deferred tax asset in the P&L as profit for the years ending June 11, 12 and 13, which increased reported profits. Deferred tax assets are generally recognised over a period of time, and accounting for the entire value in one year indicates aggressive accounting. However, for the quarters ending Sep-13, Dec-13 and Mar-14, the company has accounted for deferred tax payment @ 33-34% and reported the net profit after this payment. This seems to imply that they have become a full tax paying company in FY14 (their financial year ends in June). This coupled with dividend payment declared last year provides some comfort on the authenticity of the financials and cashflows.
There is an amount of 23 crore that the company had written back to the accounts in 2010 (being 90% of the outstanding creditors) as the BIFR scheme had proposed settlement of unsecured creditors at 10% of the outstanding. The unsecured creditors filed an appeal in the Appellate Authority and the same is pending. In case AAIFR fully/partly judges in favour of the creditors and increases the amount to be paid to them, the company will have an additional liability, for which no provision has been created yet. Further, the company has some tax disputes amounting of some 2.5 crore disclosed under contingent liabilities not provided for. These are some of the red flags I could come across.
Bulk of their business is currently trading as they have large level of stock in trade and their Jammu plant was closed till recently. This is also evidenced by the operating margin of 3-4% for the last few quarters. I guess this could reduce after the start of their Jammu operations, but there is no history to go by to estimate volumes. A bulk of their receivables is due from their private group company (also a subsidiary of the Netherland parent) through whom they conduct the trading business (receivable days have increased from 12 to 25 days). I would assume the amount to be entirely recoverable given the common group ownership.
Historically they seem to have relied a lot on contract manufacturing (before things turning bad), which could pick up steam as their operations stabilise (Symphony had displayed similar trends in relation to increase of the level of contract manufacturing as the years progressed once they exited BIFR).
The company revalued land, which added to the reserves and had a part to play in their networth turning positive. Given that this was under the aegis of BIFR, this can be considered acceptable. The promoters converted part of their ECB into equity (albeit at FV of 10 Rs and not at any premium) and have been infusing funds to manage working capital.
In current year ending June-14, the company has grown its sales at average of 19% in the last 3 quarters and assuming it continues this for Q4 also, it can clock sales of apprx. Rs 57 cr and net profit of about Rs 1.7 cr translating into EPS of 1.55 and PE of 22-23 on trailing FY14 basis. June Q results could reflect the impact of restarting of Jammu operations.
Will wait for their June Q results and perhaps also their FY14 annual report before taking an investment call. Meanwhile interested boarders could share additional notes to determine whether it is an investment worthy candidate.