Company recently launched Himeya brand under its flagship. In my view, a very good move!
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what are views on yarn exports in general and the textile sectors potential in the next 6-18 months.
Q2 Results are out. Some observations:
- Their revenue has grown QoQ and YoY. It looks like the industry is slowly recovering. However, we need to see the effect of inflation.
- Cost of cotton has decreased over last year. But, in quarterly report it shows that the cost of raw materials have increased. Not sure why.
The cotton futures prices are trending upward. It is expected to have upward pressure in coming months. So, the industry is still not out of the woods. - The primary change in operating expense is the change in inventory. It appears that the inventory is still piling up as can also be seen on balance sheet.
While the company’s numbers have stabilised since last year, it appears that they still have a long way to go and repay their debt.
Disc: Invested.
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Have you attended concall…can you share notes
Thank you
I found the management quite bullish on this concall, which is different from the usual very conservative style. They maintained their stance of ‘stable demand outlook with an upward bias’ whilst answering all questions.
- In further questioning, they sounded more bullish when guiding that capacity utilisation should reach in high 90’s before 3 years from high 60s currently. When I asked them about triggers for this on the call (below), their reasons were pretty well outlined, though obviously it still has to play out.
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On debt, they are happy to work on it to reduce it year by year, rather than doing something like raising capital at these valuations.
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IMO, valuations are very attractive versus peers still for the kind of business/management this is purely because of above debt. Versus the likes of Welspun/ICIL, I think Himatseide can do some good catching up on P/B P/S in case they are able to pare down this debt (even if in a longer timeframe/maybe dilution at better than current valuations over time in a favourable business environment)
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There is significant capacity headroom here without needing Capex in case a bull cycle is coming with all the triggers in the sector (coming out of destocking, issues with Chinese cotton ban, Pakistan industry issues, potential FTAs, new products/divisions, domestic product launch). Currently capacity utilisation for them is in the high 60s.
Essentially, I invested as I thought in the next few years the R/R was favourable and there is a chance of the dual engines of earnings growth + multiples expanding in case the situation plays out for the company.
Disclosure : Invested as core PF position in self and family accounts and hence I am biased. I am not a registered SEBI advisor and this is not investment advice. I have made transactions in the last 30 days at lower levels.
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While I agree there is ample scope of operating leverage to play out and the possible near term triggers for the sector (FTAs etc), I am not so much sure how such downstream players shall perform when cotton/yarn prices begin to rise. With discretionary demand already tepid not sure there will be too price taking from the ultimate consumers. Also, I felt the sudden QIP done was quite contrary to the management’s tonality in the Q2 concall. Scope of RoE and RoCE expansion is also very limited as compared to its peers.
Valuations are ofc in favor but that’s across the textile industry.
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