Probably, earlier deferred tax was playing spoilsport, but starting this year, it should not and therefore, the cash flows should become more consistent.
Had a long conversation with a manufacturer of sewing machines in Ludhiana. He has been in this industry for the last 20 years and runs his own unit. Here are the salient points;
1). The total sewing machine market in India is 2.5 lacs a month which is 30 lacs per year.
2). The industry is split between 50% organised and un-organised sector. The organised sector has been making inroads into the market over the last few years and the market share of the organised sector has grown from 20% five years ago to 50% now.
3). In industry parlance the industry is divided into the black cast iron and the white plastic sewing machines.
4). The cast iron machines are used in the domestic sector and also small scale industrial sector. The white machines are used in the bigger industrial sector where more often than not it is the buyer who insists on this type of machine. Typically these are buyers like Reebok, Macy’s etc.
4). Cast iron machines are all manufactured in India and all the plastic white machines are imported from China.
5). The world has moved on to aluminium and plastic as the main materials for the machines. However, in India the acceptance of these machines is very low as they still want the heavier cast iron machines.
6). There is only one unit manufacturing cast iron machines in China with a daily capacity of 1500 machines per day. Hence, the threat from China in the cast iron machines is nil.
7). The local units have managed to survive only around Ludhiana because of the cluster effect with an eco system of suppliers and buyers in close proximity.
1**.** Theindustry is a low margin, low growth industry. There have been no new entrants in the last few years. A number of experiments to start similar clusters in Gujrat and MP have failed in the last few years because of low profitability and the absence of the supplier and buyer ecosystem.
2). The average selling price of the cast iron domestic machine is around Rs 2000 with wafer thin margins.
3). The organised sector has managed to grow their market share by reducing the price differential on a machine from Rs 500-700 to around Rs 100 - 200 today. Less than 10% differential on a branded vs non- branded is something that the customer is willing to pay.
4). This reduction has come both by the way controlling internal costs consolidating vendors. Large volumes in exchange for larger volumes to vendors has driven the costs down.
5). The industry is not very capital intensive. It is highly labour intensive and hence the barriers to entry are very high. Given the issues with labour in India, only clusters like Ludhiana have managed to survive as there is a pool of trained work force which is very difficult to replicate elsewhere.
6). Most of the cast iron machines are being bought by people who want to run small enterprises from home in addition to the small tailors and small establishments.
7). The modus operandi in small towns and villages in India is that usually a money lender buys the machine and sells it to these small artisans on an instalment basis. Therefore a machine costing Rs 2000 is sold at 12 instalments of Rs 250 per month. In other cases, the middleman sells the machine to these people with an assurance of work like stitching pillow cases, hankies etc and the instalment adjusted against the payments.
Usha Vs Singer
1). Usha is clearly the dominant player with around 40% of the market share selling 90k- 1 lac machines per annum. Singer sells 30-35 K machines per annum with 12-15% market share.
2). Usha has a more consolidated vendor base with 6-7 vendors whereas Singer has 7 to 10. Given Singer’s history, a manufacturer doesn’t want to put all their eggs in one basket with Singer. However, with Usha the vendors units supply exclusively to Usha with vendors supplying 1000- 1500 per unit per day. Therefore Usha’s procurement cost is lower.
3). The margins are wafer thin and any price increase over and above inflation will again result in the unorganised sector clawing back the lost market share.
4). The real margin in this industry is made in Govt tenders when the tender is for 15000 or above. Given the nature of procurement by Govt of India,this is the opportunity to make the money. Smaller players are not invited for these tenders.
5). The higher end machines are all imported and retail for around Rs7 - 10 K. This is more of a brand building exercise than a real money spinner.
6). Given that the Singer factory in Jammu is only 72000 machines per annum, the ecomomies of scale doesn’t exist. Moreover most of the OEM supplies will be from Ludhiana. The whole argument that the factory will improve margins doesn’t seem to be true. If anything is will destroy margins. Some units in Ludhiana supplying to Singer and Usha are working at 4.5 lacs per annum capacity.
Therefore the million dollar question as to how will the margins improve is still unanswered. The topline can grow as the two combined can take their share to 75% of the market in the near term. Will this translate into profitability is another question and the biggest question mark over the investment thesis for Singer.
Disc- Not invested.
Usha is clearly the dominant player with around 40% of the market share selling 90k- 1 lac machines per annum. Singer sells 30-35 K machines per annum with 12-15% market share.
Please read this as per month and not per annum. My apologies.
A huge upmove on massive volumes in last two days. This is what a high RoE debt free businesses do so well… its almost impossible to loose money in such beauties.
Almost doubled from lowerlevels. Is there any particular reason?
its a strong brand man…
Is anyone attending AGM today ?
That Singer has amazing brand appeal is obvious from this article - http://www.harvardmagazine.com/2017/01/an-orphaned-sewing-machine
Looks like first ever management presentation is here:
Lets keep the discussion flowing.
any idea why promoters sold ?
Interesting to see that shyam shekar has entered into this stock …
but still not getting why promoters sold. any idea on this?
its a very small sale. isn’t it immaterial ?
so probably it means we dont know the reason behind the stake sale. I find this interesting because in other markets i have not seen them do so. but nevertheless, as you said its pretty small but it always helps to know if more selling is coming or was it just one-off thing.
FY17 Result out. Though not inspiring, the growth of their home appliances business growing at much faster rate, and management expects this business to reach a critical mass by FY18.
Rs. 3.5 dividend on EPS of Rs.7.5, 46% dividend payout ratio looks very good.
Promoters have sold around 8100 shares during May(24/5-2017 and 30/5-17) in market , does anyone know why they are selling? and why such low quantities? Is it because there is no much volume happening in trades daily? @j2eeprofession_
Promoters have Sold another 61000 Shares today. Does anyone know the reason behind selling?
Hi guys, I’m planning to attend the AGM. Please let me know your queries if any. Would request you to restrict your queries to 2 max, thanks.
thats good. A few questions:
- Why did the promoters pare their stake and what’s the roadmap on it for future?
- Is their positive affect on sewing machine market migrating to organized players post GST?
- What are the growth triggers now?
I have already emailed them last month(June 6th) regarding sale of shares and this is what I had got reply from Rajiv Bajaj
Question was :
I am a Shareholder of Singer India Ltd, and I would like to get some clarification from the company regarding the sales of shares from the Promoter group. There has been a decline in % holding of the promoters for the last many months and today also there has been a sale of 61,000 shares by the promoter. I would like to know what the reason for this selling is as I am not able to get any info of cash needs for the company or any other relevant data.
The promoters own shares in numerous entities in Asia, including Singer India Limited and trade shares in these entities from time to time. Any such changes in shareholding does not impact the management or strategy of the company.
Hope this clarifies your query.