Singer - Possible turnaround a.k.a. Symphony

(vinay ambekar) #1

Singer India is a 75% subsidiary of Singer India BV Netherlands. It is a part of Singer Asia Ltd. ( 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.

(J2EE Professional) #2

Nice analysis. I am invested in this stock. There’s additional note at aceinvestortraders’s blog, incidentally, posted today itself. He’s detailed what could be the next step in scaling of Singer’s business in next few years. You might want to look at to infer the motive behind identifying deferred tax as profits.

(JKS) #3

Any reco in ace is going to be UC for a few days, if we go by recent examples of Waterbase etc (2X in 2 months!). Singer seems to be coming out of long consolidation and this exposure will mean that folks will chase this from tomorrow

(J2EE Professional) #4

Waterbase went up exactly 3.5 times in 2-3 months, but lets try to investigate singer (and i dont think it would go upper circuit tomorrow). I am invested in singer, but if fellow valuepickrs can scrutinize it, it would be great.


What is the URL of this Ace trader site? Sorry for the hijack.

(Nikhil Jain) #6

It touched 140 already. your recommendation has some Value, fellow valuepickr

(J2EE Professional) #7

here is it dude …

(Aksh) #8

I had a look at this sometime back and was wondering why it was so cheap with such a pedigree…didn’t get time to delver deeper though. Looks like an interesting turnaround story worth digging more.

(vinay ambekar) #9

Some interesting links:

Summary of entire proceedings of BIFR right from registering to de-registering.

Comforting part is that all the major aspects of the rehabilitation scheme have been implemented, and key takeaways are:

)- sincere management who infused funds to revive the company and complied with all aspects of the scheme which demonstrates their seriousness towards the business

)- debt free status of the company at the end of the scheme

)- restarting of the Jammu plant implies that the government authorities also would have mostly complied with the concessions provided for in the scheme. This would be a critical factor as manufacturing operations would tend to improve the margins of the company

)- there could be an element of pending litigation with regards to unpaid dues towards statutory authorities and unsecured creditors. Going by management disclosure in the FY13 annual report, these dues are around 2-3 crores, which is not huge in my opinion. Provisions have also been made to pay 25% of the unsecured creditors (up from 10% as per the initial scheme) and this appears to have closed the matter atleast for a bulk of the outstandings (contrary to my initial post)

p Conclusion - the company now appears free to concentrate on its business

ICRA ratings report brought out in March 2014.

This is for non-funded facilities ie letter of credit and bank guarantee, and indicates that the company continues to be debt free (funded facilities). The report gives a brief history on what ailed the company (appears to be management inputs mostly), but the 2nd para speaks well of the owners/management/group pedigree/ brand which gives some comfort. Understandably the rating is the lowest performing grade, but the outlook is stable.

The plant capacity is 72000 units per annum. Singer sewing machines cost as per various online retail websites ranges from 4000 Rs for the manual machine to 11000 for high end automatic version. We can get some rough idea of the sales potential from the plant, but even assuming 100% utilisation and all high end models, the revenue is 79 crore, which is far less compared to what the company has done in the recent years. For me currently, it is like throwing a dart blind folded, and I will pass up any analysis on this till further information from management becomes available.

This is another old (undated) article which indicates that the management had prepared a contingent plan to keep the brand alive, in case the BIFR failed to announce a revival package.

Now that Singer India is out of BIFR, we can expect all business activities to be conducted through the listed entity itself, although there is certainly an element of risk that business could be diverted through the private group entities. However, considering the management intent to see through the BIFR proposal successfully, this is a remote possibility in my view.

(vinay ambekar) #10

The recent price movement is certainly interesting (wonder who is buying), but the reason I am not focusing on it much at the present juncture is that I first want to establish whether the company is investment worthy. The price can come later, albeit there is a risk that it would have run up a lot by that time. However, even if it doubles from hereon, the market cap would still be 300 crore, which could turn out to be miniscule considering the size of opportunity. If the journey is long, it is better to get on the train when it is just leaving the station, rather than board it much earlier only to later realise that the train itself is broken down.

(J2EE Professional) #11

Take a look at this link-> …If you take a look at this link, we’ll can easily scale the revenue potential multi-fold.

I have visited two dealers in Pune. According to both of them, there’s hardly any sale of manual version, and the cheapest automatic is around 7.5k after 15% discount (if i was ready to lift then and there). Furthermore, one of the dealers told me there are some machines that cost around 1.5lacs but those are mostly bought by bigger clients and mostly directly via company.

Secondly, there’s no subsidiary of singer India now. It had two subsidiaries named, Himec India Limited and Singer India Trading Limited but both are under voluntary liquidation.

Till now, Singer had done a lot of outsourcing, and I hope it continues some bit of outsourcing.

Best Regards


(vinay ambekar) #12

Another blog post, but more than a year back. Sharing as much information as possible since so little of it is anyways available. The channel checks mentioned in the post are unconfirmed, and hence should be taken with a pinch of salt. The comment on targeting youth is interesting indeed, which was also in the aceinvestor post.

(J2EE Professional) #13


I do not trust arunthestocksguru. He has dubious record. As far as comment targeting youth is concerned, its coming from their AR12, AR 13. In their (last two for sure) annual reports, Management has indicated that youth is one of the new sales channel for them. And once again, sorry if it is offending you :slight_smile: , but this arunstock guru, I DO NOT TRUST HIM and would be really apprehensive if he is also there in the stock. But thankfully, the link is more than one yr old, so I can rest assured he is not involved too much in this.](

(Dhiraj Dave) #14


Find enclosed my view on the company financials:

  1. the company current operates merely as trading arm. Even with Jammu plant being operational, I doubt that it would be sufficient to cater to all India market.

  2. the company does not own brand and pay 1% of Sales (net of cash discount) to its parent.

  3. The trading margin of 5-6% at EBITDA level is increased due to Deferred Tax Assets. Since, the company has accumulated losses and unexpired warranty, it would continue to have smaller deferred tax after tax benefit being exhausted during the current year.

  4. In FY13 (June end), the real driver to profit was Miscellaneous income (around Rs 2 Crore of write back of of Rs 2.1 Cr. So Till June 2013, actually there is no improvement in EBITDA despite significant jump in sales.

  5. During the interim results (3 quarters from Sep 2013 to March 2014), while the sales has increased Rs 60 Cr per quarter, PBT (Considering defer tax assets,a better indicator of profitability) has declined to less than Rs 2 Cr during the quarter.

  6. In nutshell, although the company has brand strength (with brand own by parent and royalty another issues) and shown growth in sales at around 20% (mainly in sewing machine), there are no immediate trigger for margin expansion. The current management has also not being able to get benefit of Jammu Plant (being the only plant of the company) as shown in interim results. I believe the company is better off as trading company with strong brand which shall generate free cashflow for dividend.

Having said that, at Trailing 12 months P/E of 25 times with price of Rs 147 per share for a single product trading company, not owing brand and in inefficient management/promoter (BIFR reference Resulting in loss to lenders and writing down of equity affecting minority shareholder) and strong brand of Singer but with growth rate in range of 10-15% p.a. (my assumption), most of it is already discounted in the current prices. While company like Symphony and Vadilal had also being referred in BIFR in past, they had brand ownership and exciting growth products which has turned fortune as against Singer.

Views from other members are welcome.

(bomi karkaria) #15

I don’t know anything about this company, but have a fair idea of Deferred Tax Assets/Liabilities.

These are mere book entries resulting from difference in accounting standards and income tax rules. Over the life of an asset, they will aggregate to zero.

Hence, if DTA/DTL are increasing a company’s profits, then the right way to analyse is to ignore the same.

Anyone has any question on this please post.

(J2EE Professional) #16


1). Once the jammu plants starts working we’ll get a better picture. Multiple shifts can increase the output. But lets wait.

2). Most of the multi-national subsidaries operate that way. No big deal in my personal view.

3,4. I agree, EBITA margins are less at the moment. Once the plant starts working fully, the EBITA margins should improve dramatically.

6). Management is not mediocre. They have done a great job is in bring the company back in shape. Remember, they are selling Sewing machines, which is a pretty saturated market. Now their consumer durables sales are improving dramatically. Last year it was around 15 cr and before that it was around 3.5 cr. I believe this year we should get segment reporting on that as I guess this time, it would cross more than 10% share in the overall turnover.

But I agree, at present EBITA Margins are nothing to boast about and thats where the real potential lies. Improvement in EBITA will dramatically improve EPS as equity capital is not too huge.

(Nikhil Jain) #17

I entered the stock yesterday at 130 and exited today at 157.5

was it the right strategy for short term? Now, I’ll consider if it should take a place in my portfolio.

(vinay ambekar) #18

I have not found much information regarding the total market for sewing machines, and hence have to rely on old articles and some guess-estimates.

As per the article, the sewing machine industry in 2010 was estimated by Usha at 3.2 million units. Usha had sold 43000 machines in 2009 and were expecting to sell 70000 units in 2010 and claimed to have 50% share of the organised market. Thus the organised market was estimated at 140000 units in 2010 comprising only 4.4% of the total market. Singer management stated that the overall market was growing at 3% per annum, and hence in 2014 could be around 3.6 million units (3% each year since 2010).

Singer Asia, on its website, states that Singer India has 20% share of the market, and I assume they are talking of the organised sector. This implies that 2 large players control around 70% of the organised market. However, absence of volume information on Singer restricts further analysis.

Overall, this sector appears to fall under one of Peter Lynchâs categories where the market isnât growing by much, but shifts from unorganised to organised could present good opportunities for investing.

This is corroborated by some (again, old) information presented in this article which states that 90% of all sewing machines in India are manufactured in Ludhiana, and my guess is that all these are small scale in nature. Some information is also given about the number of units produced (10000 per day, which translates into 3.3 million units per year ie 10000 units per day * 300 working days per year divided by 0.9) which appears broadly in line with the information in the previous article.

Further, an interesting extract from the Singer Asia website is presented below:


Presently, Singer India sells Singer and Merritt brand consumer sewing machines and other sewing related products to distributors and dealers throughout India, through its own small retail network of 30 “Singer” shops in highly attractive locations in India, and through BTI to certain government agencies and to military canteens. Singer in India has about a 20% share of the sewing market. The new small appliance line is being sold by Singer India through a separate network of distributors and dealers, as well as through the Singer shops.

Singer India assembles, through contract arrangements, some of the sewing machines that it sells; sewing machines are also purchased from outside suppliers in India and from SVP. Singer India plans to reopen its own direct manufacturing operation with the goal to satisfy a portion of its own requirements and, possibly, to export sewing machines to other Singer Asia locations and to SVP.


The business model appears to have historically relied on purchases from other group entities for trading and on getting the machines manufactured on contract, and thereby being asset light. ROE and ROA and other efficiency ratios like sales/assets and sales/working capital appear to be decreasing over 2011, 2012 and 2013. This could be due to BIFR related issues which could have distracted management attention from operations, and also partly the effect of increasing denominator (ie Networth and assets) as operations demonstrated improvements.

The more I read, the more I am getting inclined to believe that the investment thesis rests on the ability of the management to grow the business by taking away market share from unorganised players. They certainly have a strong brand back-up and group pedigree/experience in other countries. They now need to invest in advertising, marketing and brand building to ensure market penetration and growth, and this needs to be monitored as the YOY decreasing sales growth trends do not provide adequate comfort at the moment.

(Aksh) #19

Turnaround,even if successful, will take lot of time to materialize giving ample opportunity to enter the stock. It’s majorly going to be a waiting game. Better to wait and watch as to how the story unfolds. Let the euphoria die down.

Disc: Exited after making small profit in trading call.

(J2EE Professional) #20

The stock has broken out after a consolidation of more than 2 yrs…after this upmove, the stock will re-test the breakout range and then start trending upwards. One could add/enter at that point again.