Cravatex... an atheletic stock

I have had this stock for over a year and my impression is the prices are driven either way more by lack of supply. But, the company is doing well. The opportunity size is there. FILA as a brand is picking up in the West (atleast in tennis circles, which I am clued into). They also have a distribution tie up with Dunlop Sports (which I doubt is going anywhere) which still makes good tennis balls. Their Proline Fitness business is a steady one with low steady growth.

My take is that this is a moderate risk, high return stock for the next 1-2 year. But allocation to the portfolio should not be very high. The main reason I say that is the Batra family has not been known to be able to scale up their businesses. When I was young(er), they owned (and still do) the Proline sportwear brand. It used to be the best sportwear brand in India, followed by Deer Club. Now, I donā€™t see any Proline T-shirts anywhere. So, its possible that they would not be able to scale up the FILA business as well.

Q4 revenues significantly lower than Q3, and I think this kind of drop is happening after a long time. Consolidated fy12 eps of 35.57 and closing price of 657.8, or 169crores market cap on 9.2crores pat. There is a possibility some people were aware about the results considering how the stock fell from 799 to 611 within a month, but this stock has been highly volatile for a few years. Dividends have been increased from 2.5/share to 3.5/share, however in terms of yield, it is peanuts and the payout continues to be low at ~10%. Anyway, with about 245crores sales (2.5x yoy) the company looks on track, but meagre 9.2crores profit (1.5x yoy, 3.8% margin) upon improvement could provide significant upside. Likely to be a bumpy ride ahead as in the past with this stock.
Anyway, need to keep a tab on this and find out more about:
* Number of stores, today and planned in the next 3-5 years;
* Same store sales growth;
* SKUs per store;
* Funding plans regarding expansions;
* Most of the cost related items such as rent, salary, cogs and interest payment need to be tracked;
* What's the company doing regarding marketing? (advertisements, hoardings, etc.?)
Maybe we can prepapre a list of questions and do a meeting with the management some time?

It would be great if we could do a management interview. Also, this time the expenses have been higher than usual. Need to understand if it was for the UK subsidiary.

Not a good results.Havenā€™t gone through in detail.Need to take sometime next week to check on this.Anyone checked the results?

Poor results. Bumpy ride indeed as discussed earlier. Stock has tanked over 15% today. All those who were saying the stock doesn't fall over 30% of its highs need to recheck their theories. The stock has lost over 37% of its value since 52w highs and the future doesn't look bright.

Quarterly numbers (consolidated):


30-Jun-11 30-Sep-11 31-Dec-11 31-Mar-12 30-Jun-12
Revenues 40.8 54.2 85.0 64.7 57.8
EBITDA 3.9 4.9 5.3 4.9 3.7
PAT 1.9 3.1 3.0 1.2 1.6

Mcap 132.0
EV 157.4
P/E 14.8
P/S 0.5
EV/EBITDA 8.4

Look at those ttm numbers for p/e and ev/ebitda. Such numbers sound okay for a company which is doing fine - but for this one? Absolutely not.

Even the likes of Ajanta and Mayur which seem to be doing everything alright don't enjoy such valuations. The company continues to be in negative free cash flow territory, and beaten down rupee doesn't help in quarterly/annual results. We need to look at lower valuations - maybe of the order of 5x EV/EBITDA; 8x P/E.

I am going to stay away from this one for a while. Might look for an entry once it goes 100cr mcap but will be more comfortable around or below 80cr mcap.

Views invited.

Did buy some today and look forward to buying more on sharp declines. The longer term possibilities are huge!

Yes, the recent performance is weak and one needs to do a re-check on the growth prospects ahead.

1 Like

I was wondering why it didnā€™t get locked in lower circuitā€¦understood now :wink:

In the past, it has traded at 5-10x pe for quite some time. What prompted you to buy at current levels?

Well although i never bought this one, but lesson learnt here from this story is instead of looking for multibaggers look for steady compounders .

Past PE of 5-10 was when this story was un-discovered. Since the nos started coming the stock started trading at 20+ PE. I donā€™t think it will go back to single digit PE until there is some major problem in growth prospects.

I think its time to try and reach out to the mgmt and get a better understanding.

Agreed. Missed the agm because of some prior work, although the venue was a few mins from my office. Will see if I can arrange a meeting. Could you and Donald try reaching out to them as well?

This one is taking it hard on the chin.

In april 2012 it was around 740-750 odd and now within four months it has come down to 465 levels.

I guess it will need very good base building before any significant upmove after the way it has fallen.

that would be awesome. would also like to understand more abt roles of BB(UK).

http://content.yudu.com/Library/A1wr4b/MWBMagazineApril2012/resources/41.htm Link: http://content.yudu.com/Library/A1wr4b/MWBMagazineApril2012/resources/41.htm

I agree. Last 2 days it has fallen nearly 30%, so it will be a while before investors get back on this. The company fared poorly on the European business. Indian business was fairly strong.

I think stay away with this business for a while. Reason looks perfectly valid for a steep fall, as business seems not in good shape.

I dont think there is anything wrong with the business. Their domestic business is doing fairly well. They got into trouble because they are primarily importers in a falling rupee scenario. Once the rupee stabilizes the company should again do well. Health equipment and FILA should do well in India, where health consciousness is on the riseā€¦

The Inventories and trade receivables up by more than 50% on YOY basis. Another thing of concern is that the rental income of 4 crores spikes up the ROE artificially by around 12.5% on an equity base of 32 croresā€¦granted there is high potential for futureā€¦but such stocks would require a high margin of safety.

Fila has issued 30 years license to cravatex. This should help build confidence for more investment as there is a long term agreement signed.

http://www.thehindubusinessline.com/industry-and-economy/marketing/article3929269.ece

The stock should do well once some traction builds around the FILA brand. Also, the Reebok issue may help FILA in gathering market share.

Disclosure: I am invested in Cravatex and an obviously interested party.

Some positive news for FILA

http://www.firstpost.com/business/adidas-reebok-problems-to-benefit-fila-in-india-466118.html

Looks like this could be a kicker if FILA capitalises

can this guy be a sleeping beauty?