Thanks for the detailed post. I agree with your thoughts and insights. I think the company is at a very interesting juncture. The most important thing about this company is the high margins and profitability track record they have had…its actually rare and perhaps a case study to find such a company in the textile sector. Having operating margins of over 25 (infact closer to 28-30%) for so many years is really rare. But the limitation was growth…the co was stuck at 130-140 Cr turnover range for a very long time. It’s only in recent quarters that they have started growing (after doing decent capex in recent years) and the latest annual report is very aggressive and a delight to read…if they can actually grow and deliver on what they are talking, I feel there is lot of value at these levels. But then we need to figure out more about the growth drivers…in past the co has disappointed on the same.
The company seems to be doing frequent small buybacks lately. One happened in each of 2022, 2019, and 2018. Please note that 2020 and 2021 were exceptionally bad years, so buyback wasn’t possible.
In the 2022 buyback, the promoter’s shares went down from 18106682 to 17894390 (the percentage holding still went up marginally from 66.12% to 66.34%). With the buyback price of Rs. 245, they must have received about 5.2 cr pre-tax - more than 50% of the total buyback amount.
IMHO, the buyback was not done opportunistically to take advantage of undervalued stock, and the price paid (Rs. 245 per share) was high. It makes me wonder if the objective of the buyback was to return cash to the outgoing shareholders (including promoters) in a tax-friendly manner instead of creating value for the continuing shareholders.
The promoter didn’t participate in the 2019/2018 buybacks, so this doesn’t seem like a recurring pattern.
The annual report came out a couple of days back, and the stock is almost hitting the lower circuit today. Is there some unfavourable information in the annual report or otherwise that I am missing?
If promoter has participated in buyback this time (and not before) then is surely means company has peaked.
Sales and margins are stable so no more upside.
As margins are high, competition could lead to margin reduction as it is not a branded / differentiated company.
At current price of 180 seems to be fairly valued with downward risk.
