Premco Global --- Narrow Fabric (A critical component for inner wear)

Stock Opportunities Untested - but worth a good look
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Premco Q3FY23 results announced.

The company’s operation in India (as indicated by Standalone numbers) showing stability in profitability (YOY), although sales continue to remain lower than last year.
Consolidated number have gained from exceptional income booking from Vietnam operation. However, at PBIT Level, Vietnam contributed negatively Rs 1.2 Cr Loss (Difference between Standalone PBIT for Q3FY23 over Consolidated PBIT before exceptional items for Q3FY23). During Q3FY22, the same difference was Positive Rs 2.3 Cr. So Vietnam operations continue remain concern during Q3FY23 as comapred with Last year.

However, excellent improvement in Indian operation as compared Q2FY23. Vietnam operation also shown sequential improvement in sales from Rs 2 Cr in Q2FY23 to Rs 5 Cr in Q3FY23. So, trends are showing improvement and I am hopeful that with China re-opening from Covid, even Vietnam operations shall show improvement during next 2-3 quarters.

My optimism is also supported by highest ever quarterly dividend of Rs 6 per quarter. This almost 45% payout of quarterly profit. If the company continue to maintain rate of dividend, at current price of Rs 320, Rs 24 annualised dividend give dividend yield of 8%, which is very good in my understanding.

Discl: Holding tracking position (1.2% of my portfolio). Not a SEBI registered advisor. Not suggesting any investment action for reader. I have been wrong multiple time in past. I may change my investment holding (including exiting from the company), without informing the forum members.

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Very well put up @dd1474 :+1:

Despite subdued last one year, on TTM basis it still trades at around 6 on EV/Ebitda.

Haven’t came across any other microcaps where cash flows are as good as premco.

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Was looking at related party transactions. Noticed this.

image
image1304×134 24 KB

It is not repayment of loan. So, puzzled on what this could be and how this is almost twice that of remuneration of 63.46 lakhs…

Disc: Tracking

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excellent results 8e94e590-c3cc-4fa8-87d9-19c8208091bc.pdf (bseindia.com)

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When I look at the PAT and compare with the year before, we have profit coming in from:

  1. Increase in Other income
  2. Positive impact due to Changes in inventories
  3. Reduction in “other expenses”

Revenue has declined QoQ and YoY.

@HIMSHAH, am curious to know what other factors make this as excellent result. I understand that textile went through a rough phase and it is recovery phase now. Is the result excellent because the expectation was far worse?

Disc: tracking

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Attended AGM today virtually. Find enclosed my quick note for Premco AGM.

Current capacity utilisation is 70-80% for Woven elastic and 50% for Knitted elastic. FY23 decline in India was due to lower demand in domestic market while Vietnam performance was adversly affected due to lower demand from USA which is main market for export in Vietnam capacity.

The company added 10 new customer, 6 in domestic market and 4 in Export market. FY24, the company expect 10-15% growth

New plant in Umargaon is expected to commence production from FY25. Expect total turnover of Rs 50 Cr at optimum capacity utilisation, on total capex of Rs 18 Cr. In First year of operation expect turnover of 10-15 Cr.

Trying to add new customer from Europe market, which would assist in long term growth propsect of the company.

Vietnam cost of production is lower due to lower Power cost and income tax as compared with Indian market.

Audit fees, there was no major jump. FY22 Taxation fees was not included in Audit fees which has been reclassify which show in major jump in FY23.

The company has no plan to list on NSE in short term.

Top 5 cusomer account for 60% of revenue.

The company paid Rs 1.39 Cr to minority partner in Vietnam (actual investment by selling investor was Rs 1.25 Cr)

The company taken note of investors about excess cash on balance and would increase dividend payout/ buyback of equity share future.

While the shareholder attempted to ask where pointed question, the management continue to remain reserved answering question in my view. They are not very open about their future growth plan. In fact critical question about rationalising production to two new plant vis current manufacturing at 5 location (including Mumbai/Palghar) remained unanswered. Overall, get feeling that management /promoter are happy with status quo and it would take some more time for extenal/internal factors to move management out of their confort zone. Till that time, company would continue to run in auto pilot mode with no major growth in my view.

Disclsoure: Among my Top 15 investment due to higher dividend yield and strategic geography for capacities in India and Vietnam. My view may be positively biased due to my investment. I may exit/increase my allocation in the company without informing the forum. I am not SEBI registered investment advisor. I am not recommeding any investment action in company.

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i think for listing on nse minimum capital must be 10 cr . so its not possible for them. atleast they can split the shares to 2 rs so liquidity increases.

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Its very interesting example…
i am tracking premco since 6 -7 years now, Its a sweet small little angel :slight_smile:
Why this 100 cr annual sales was splited between 5 wide spread locations…
my internal feeling says it will rewards share holders sooner or later but at same time they are very lethargic , why they r not taking any aggressive steps to atleast reach 100% capacity utilization. what 50% utilisation “Halwa he kya”.

Disc. planning to take some position

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They can never run on 100% capacity utilisation. If I remember correctly once in agm I had asked them when it was not held virtual. They had said that when there is design change or some changes in products order they need to stop the machine and they need few days to restart production on that machine so that days and capacity wasted.
Any one having technical knowledge of textile can guide.

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Hello everyone,

I have been following this company since 2017, but never bought it till date. But, after going through the full thread and looking at current dividend yield and other valuation metrics I feel that I should buy it now. But I have a very basic question about the ongoing CAPEX in Gujarat.

Premco did the sales of 66Cr in 2014 and in 2023 it did 70Cr, meanwhile the Vietnam facility came on stream, which expanded the existing capacity by 50%. And now they have announced the new capacity which could do the sales of 50Cr at peak utilisation. Why do they need the new capacity if the existing capacity is not utilised fully?

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But, they have already increased the capacity in Vietnam and I could not see its impact on sales. I already mentioned in earlier post that prem I had clocked same level of sales even after 8-9 years. Then why they need to increase the capacity or the volumes have increased but realisations have come down that much?

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Premco, poor results continues in the series for the company. Dividend declared for quarter also declined to Rs 2 per share during Q3FY24 as against Rs 6 per share declared in Q3FY23. The decline in dividend declared is major concern for me.

During the quarter. while consolidated profit declined by 53% yoy, standalone profit declined by more than 61%. So, India business continue to adversely affected. Even depreciation charge for quarter is almost same last year in standalone business, hence assume that company has not commericalised new plant. When the new capacity would be operational, the company performance is expected to remain lower than normal level of profitability due negative operating leverage.

Overall, no positive take away from the results in my view. Proftiablity in Vietnam and India under pressure, No update on capex commencement, Major drop in Dividend, No attempt from management for NSE listing. Critically evaluating my investment in company.

Disclosure: My view may be biased due to my investment in the company. I may increase/decrease/exit my holding in the company without informing forum. I am not SEBI registered advisor. I am not recommening any investment action in the company. Reader shall do his/her own due diligence/consult financial advisor before making any investment decision.

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seems company has no strategy… expansion without sales. margins coming down… then why increase capacity?? It is anyway a very fragmented market with many small players and low margins…
only 2 years of COVID sales and profits were high - maybe due to supply crunch from other countries…
should go back to pre-COVID prices.

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ordinary results - sales, profits flat… i think this is steady state of company. PE is above historical average…
stock will stagnate or even come down… highly competitive industry.

www.bseindia.com/xml-data/corpfiling/AttachLive/eb92f851-ec27-49ec-b97a-e385ae012b88.pdf

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Since standalone are inferior in profitability as compared with Consolidated, I infer that Vietnam operations did well during the quarter. Also, around Rs 1 Cr for FY24 has been capitalised as Capital WIP for Umargao plant as per notes. Assuming that plant would be operational from FY25, we shall see further increase in fixed overhead (Depreciation+ Increased expenditure of new plant), which would also likely to adversely impact company performance in domestic market. In order to stock to see major movement, it would need major improvement in domestic market, stable Vietnam market and good capital allocation decision like Buyback and listing of stock on NSE. For last decade the company has delivered on any of these. Hence, not expecting any magical swing in the stock price.

Discl: My view may biased due to my holding. I am not SEBI registered advisor. Not suggesting any investment action. I may exit/change my holding without informing forum.

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