Introduction:
Ashnoor Textile Mills was started in 1984 by the Gupta and Agarwal families as a manufacturer and exporter of terry towels, exporting mainly to the US market.
The company boasts of US retailers and importers as their customers - preliminary online research shows they sell to importers like Garnier Thiebaut, who specialise in high end linens for hospitality and home products.
Ashnoor has been on an impressive growth trajectory over the past few years, with sales growing from a sale of Rs. 88 Cr and a PAT of Rs. 2 Cr in FY18 to a TTM sale of Rs. 150 Cr and PAT of Rs. 7 Cr for FY22 (source screener.in).
Catalyst (Why now):
Industry Tailwinds
The ban on Xinjiang Cotton by US retailers (Xinjiang cotton: Western clothes brands vanish as backlash grows - BBC News) , is strengthening the China+1 theme for the Textile industry across the cotton sector. We are already seeing this reflecting in the demand of Home Textile companies including Indo Count, Welspun, Trident and Faze Three.
Why Ashnoor (Pros)
- Promoters/Management
- Mr. Suneel Gupta, one of the founders of the business, has over 2 decades of experience in the industry, allowing him to be in the perfect position to capture the industry tailwinds.
- Mr. Abhinav Gupta, the second generation has recently entered the business and seems to be growing the presence of the business in the US. Although this LinkedIn profile doesn’t directly mention Ashnoor, it seems like it would most likely be belonging to the promoter - https://www.linkedin.com/in/abhinavg07
- Recent CAPEX
- Ashnoor recently completed a CAPEX of Rs. 7 Cr in FY20, all of which was in plant & machinery, and the CAPEX seems to be bearing fruit with the company clocking the highest ever sales of Rs. 48.40 Cr for Q1 FY22.
- Increase in promoter shareholding
- Promoters have subscribed to warrants and completed a preferential issue of 7,50,000 shares at Rs. 22, recapitalising the company and increasing their stake from 70.49% to 72.81%.
- Valuation vs competitors
Given Ashnoor’s Q4 FY21 and Q1 FY22 profit of Rs. 2.27 and Rs. 2.38 Cr respectively, Ashnoor seems to be on track to complete a profit of Rs. 9.5-10 Cr for FY22 (assuming the no seasonality to numbers). At it’s current Market Cap of Rs. 70 Cr, the business is available at a PE of 7x.
As a sectoral play on the China+1 theme in the textile sector, the business is available at a more competitive valuation than competitors:
- Faze Three (20.25x PE run rating their last two quarters)
- Indo Count (13x PE given the TTM figures since Sep numbers are out)
- Welspun India (20x PE given TTM figures)
- Trident (19-22x PE)
Risks/Considerations before investing
- OCF Generation -
The business has had a poor generation of Cash Flow from Operations over the last 5 years, with a negative OCF generation of Rs. 18 Cr.
The company’s inability to convert profits into cash can lead to further debt to service higher turnover (higher working capital).
Also, given that the textile industry tends to be capital intensive, the business may not have much scope for growth without major CAPEX first.
P.S - This is my first post on this forum so I would really appreciate feedback from more experienced Valuepickrs! Apologies if I have missed out on any points or this post comes across as biased. Also, I am invested personally at lower valuations through my own and family accounts.
