Priti International Ltd

[Karthick_S]

ABOUT

Priti International Ltd is an Indian furniture & lifestyle brand that offers interior collections for homes.

Priti International Ltd (PIL) was established in 2005. It’s a family owned and operated business with a handful of employees and 3 factories in Jodhpur. Company has grown to an employee base of 80+ employees & 250+ skilled Artisans.

Products
The company manufactures 750+ products including
1 Living Room Furniture: Sofas, coffee tables, Side Boards, etc.
2 Bedroom Furniture: Beds, Cabinets, etc.
3 Dining Room Furniture: Dining tables, chairs, sideboards, etc.
4 Office Furniture: Desks, chairs, filing cabinets, etc.
5 Custom Furniture:

FY21 Revenue Breakup Company generated ~99% revenue from Wooden and Iron Handicrafts, with the remainder coming from textile handicrafts.

FY21 Geographical breakup
Exports ~ 84% (vs 97.6% in FY20)
Domestic: 16% (vs 2.4% in FY20)
At present, PIL products are exported to 22+ countries including USA, Spain, Holland, Turkey, China, and many other destinations.

Ecommerce Presence Company has a significant presence across Ecommerce platforms such as Amazon, Flipkart, etc.

Manufacturing
As of FY23, the company has 3 manufacturing facilities in Jodhpur.

PriAuction.com
In Nov,23, company launched it’s new auction website “PriAuction.com. The website is auction experience for collectors of premium furniture and antique pieces.

Offline store in Jodhpur
In Nov,23, company opened its new B2B furniture store, PRITI HOME at Boranada, in Jodhpur, Rajasthan.

Order from AAI, Hyderabad
In July,23, company got its order for Airport Furniture Segment from Airport Authority of India, Begumpet Airport, Hyderabad. The order consists of furniture solutions, including seating arrangements, waiting lounges, information kiosks etc.

Subsidiary
The Company had incorporated a new Subsidiary company viz. “Priti Innovations Private Limited” on September 29, 2022.

Strengths:

• Strong Promotors & promotor Holding 65%
• Company with No Debt
• Company with high TTM EPS Growth
• Growth in Net Profit with increasing Profit Margin (QoQ)
• Growth in Quarterly Net Profit with increasing Profit Margin (YoY)
• Annual Net Profits improving for last 2 years
• Company with Zero Promoter Pledge
• Growth in Operating Profit with increase in operating margins (YoY)

Weakness:

• Low OPM
• Depends on Trees & Woods high raw materials prices.
• Stock is categorized as micro-cap less than 300 Cr M.Cap.

Opportunities:

• Global Expansion: The mention of the distribution of products in the United States, Europe, Australia, and Asia, especially the Middle East and India, suggests an opportunity for further global expansion. The emphasis on being amongst the highest furniture sellers on platforms like Amazon indicates success in international markets.

• Changing Furniture Purchase Habits in India: The growing middle-class population, rising disposable income, and increasing urbanization in India present an opportunity for the expansion of the domestic furniture market. The focus on modular, particle board, and state-of-the-art furniture aligns with changing consumer preferences.

• WFH (Work From Home) Furniture: The emergence of a new category in the form of WFH furniture due to the COVID-19 pandemic opens up new opportunities. The company’s launch of an e-commerce site and presence on other large aggregator e-commerce sites positions it well to cater to the increased demand for online furniture.

• Government Policies: The increase in customs duty on imported furniture into India to promote localized occupation in the employment-intensive sector and support the “Make in India” initiative presents an advantage for the company, which focuses on the Indian market.

• Domestic Business Growth: The positive performance of the domestic business amid the COVID-19 pandemic and the anticipation of strong momentum and growth within the next 2-3 years indicate an opportunity for further expansion in the Indian market.

• Brand Building: The focus on building brand Priti in the domestic market indicates a strategic move to establish a strong presence and recognition within India.

• E-Auction Site for Vintage Furniture: The development of India’s first-ever vintage furniture e-auction site presents an innovative approach to selling period pieces, original antiques, and collector’s items, creating a new revenue stream and an inclusive ecosystem.

• Process and System Strengthening: The commitment to developing stronger processes and systems reflects a focus on operational efficiency and scalability, laying the groundwork for future growth.

• Diversification from China: The diversion of orders away from China due to COVID-19-related challenges, regulatory uncertainty, and global buyers looking to de-risk their business provides an opportunity for the company to capture a larger share of the international market.

• Omni-Channel Strategy: The aspiration to become India’s number one furniture and home décor brand through an omni-channel strategy, including e-commerce, offline stores, and B2B sales, aligns with the trend of consumers shifting from the unorganized to the organized sector.

Threats:

• It’s a Microcap stock with low domestic market exposure.

• Valuations are turning to Expensive.

• Supply Chain Disruptions: The reliance on skilled artisans and the production of handmade wooden and iron handicrafts may expose the company to supply chain disruptions due to factors like labor shortages, raw material availability, or transportation issues.

• Global Economic Downturn: A global economic downturn could impact consumer spending on non-essential items such as furniture, affecting the company’s revenue, especially in export markets.

• Competition: Intense competition from unorganized players in the furniture and lifestyle industry could pose a threat, with other players offering similar products and services, potentially affecting market share and pricing.

• Regulatory Changes: Changes in trade policies, tariffs, or regulations in the export destinations could affect the company’s ability to operate smoothly in international markets.

• Pandemic Impact: Ongoing or future pandemics may disrupt manufacturing operations, supply chains, and consumer behavior, impacting the company’s overall business operations.

• Dependency on Handicrafts: The company’s heavy reliance on wooden and iron handicrafts exposes it to changing consumer preferences or shifts in demand for these specific products.

• Environmental Concerns: Increasing environmental awareness and regulations may impact the sourcing of materials or production processes, potentially affecting costs and operations.

• Economic Challenges in Domestic Market: Despite growth in the domestic market, economic challenges, such as inflation or reduced consumer spending, could impact the company’s revenue from domestic sales.

Disclosure : Invested

[Nimit]

A couple of unoorganized points i have:

• I had received positive review about the Lohiyas from my Jodhpur contacts.

• Their google maps review is quite negative and their response to those is very rude.

• Management’s ambition - Their AR contains a statement from the Chairman on the lines of increasing the revenue by 5x in 5 years. Their past growth has been at this pace and their numerous growth initiatives does indicate that the management is very aggressive.

• Flipkart and Amazon review of some of the Priti’s products is really good and high in number which brings some credibility to the quality of their goods.

disc: invested, biased.

[Ashar_Mann]

Question -
What is the key Differentiator between the Company and it’s Competitors and who are those? (Also how does it positions against unorganized sector i.e, Major problem)
Why are asset turns so ridiculously high? Almost 14x? the decorative wood segment company has 4x at high end. the company has to undertake trading there is no way the company makes 7-8% margin when their supplier makes 18-20% margins

There has to be a key differentiator in the business which makes them stand out, i fail to see that the business is more commoditized i think so hence there’s no large moat
Mind you - I’m No way against the company nor it’s ability to grow. I know several Lage names have entered the counter and they are pretty damn smart than me. but i fail to see the differentiating factor or earnings catalyst here other than the fact that company becomes lowest cost producer through some way like Stylam Did in Laminates space

lowest cost producer through some way like Stylam Did in Laminates space

[Karthick_S]

Thank you for your insightful questions regarding Priti International Ltd (PIL) and its position in the furniture industry. PIL indeed has a distinctive profile that sets it apart from its competitors and positions it uniquely in the market.

Key Differentiators:

1. Focus on HNI’s & Premium Category Segments: PIL’s major focus on sales to High Net Worth Individuals (HNI’s) and premium category segments distinguishes it from many competitors. The company tailors its designs to cater to the specific tastes and preferences of this discerning customer base.
2. Global Market Presence: PIL stands out with its significant international exposure, exporting more than 80% of its products to foreign countries. This global reach enables PIL to tap into diverse markets and benefit from trends and demands worldwide.
3. Unique and Tailored Designs: In comparison to peers and international players, PIL prides itself on offering unique and tailored-made designs. This differentiation allows the company to provide a diverse range of products that appeal to various customer segments.
4. Limited Competition in Listed Furniture Businesses: PIL faces competition from a select group of listed companies in the furniture business, such as Godrej, Nilkamal Ltd, Parin Furniture Ltd, Shashwat Furnishing, Milestone Furniture, Omfurn India Ltd, and Seasons Furnishings. The limited number of listed players creates an opportunity for PIL to establish itself prominently in the market.
5. Competition with International Players: PIL competes with renowned international players like IKEA and Natuzzi. Despite the formidable competition, PIL’s focus on unique designs and tailored solutions contributes to its competitiveness in the global market.

Positioning Against Unorganized Sector:

PIL’s positioning against the unorganized sector involves addressing the challenges typically associated with this segment. Key strategies include:

• Quality Improvement: PIL is focusing on improving the quality of its products, aligning with the global trend where Indian manufacturers are gaining recognition for enhanced product quality.
• Global Standards: Aligning with global standards, PIL aims to differentiate itself from the unorganized sector by offering products that meet international quality benchmarks.

Asset Turns and Trading Activity:

The high asset turns, approximately 14x, can be attributed to PIL’s efficient management of its assets, inventory, and working capital. The company’s ability to quickly convert its assets into revenue reflects operational efficiency.

Regarding trading activities, it’s essential to consider the global supply chain dynamics in the furniture industry. PIL’s involvement in trading may be a strategic move to ensure a diverse product range, sourcing materials, or meeting specific customer demands.

Conclusion:

While the furniture industry faces challenges, PIL’s unique designs, global market presence, and strategic focus on quality position it as a key player in this dynamic sector. The company’s commitment to innovation and meeting global standards creates potential opportunities for growth in the evolving furniture market.

For a more in-depth understanding, I recommend exploring the provided links for additional insights into the industry trends and PIL’s strategic positioning.

Furniture Industry: Time for India to sharp its edges.

[sivareplies]

Priti International 20231204.pdf (804.6 KB)

I have studied Priti’s business recently and prepared my own workouts in a simple presentation. Happy to take anyone’s question. and do let me know, if negative points to validate on Priti International. Thanks

[LarryWink]

To me, the business appears to be something special, Since most of export businesses observed revenue decline in the past 2 years and expecting decline for 3rd year…through out the same time peiord priti’s revenue grew.
Q- What is it that makes priti’s growth different,if 80% of its business is export ?
Q-How expected fed rate cut in USA and EU could effect its business, does its revenue move in line with the consumer product demand ?

[Karthick_S]

The growth of Priti International appears to be unique in the context of the export business landscape. Several factors contribute to this differentiation:

1. Diverse Product Range: Priti International offers a wide range of furniture and lifestyle products. The diversity in its product portfolio allows the company to cater to various markets and consumer preferences, reducing dependence on a specific product category.
2. Unique Designs and Tailored Offerings: Priti’s focus on unique and tailored designs sets it apart. The company’s ability to provide customized solutions to its customers contributes to its sustained growth.
3. Geographical Presence: Priti International’s presence in over 22 countries mitigates risks associated with dependence on a specific market. This diverse geographical footprint helps the company navigate fluctuations in individual markets.
4. Effective Marketing and Distribution: The company’s significant presence on e-commerce platforms such as Amazon and Flipkart enhances its reach. Effective marketing strategies and distribution channels contribute to sustained revenue growth.

Regarding the impact of expected Fed rate cuts in the USA and EU:

1. Currency Exchange Rates: Changes in interest rates can influence currency exchange rates. As Priti is involved in international trade, fluctuations in exchange rates may affect the cost of importing raw materials and the pricing of exported products.
2. Consumer Spending: Interest rate cuts can impact consumer spending patterns. If rate cuts stimulate economic activity and increase consumer confidence, it may positively affect demand for furniture and lifestyle products.
3. Global Economic Conditions: Priti’s revenue may be influenced by broader economic conditions resulting from the rate cuts. Improved economic conditions could lead to increased consumer spending on non-essential items like furniture.

It’s important to note that the company’s growth might be influenced by a combination of factors beyond interest rates, including its ability to adapt to market trends, manage costs, and maintain product quality.

[Nimit]

I didn’t understand why Priti’s margin should be less than its suppliers. Supplier is in a commodity business. Priti is selling finished goods b2b and b2c (online and retail outlets). Increase in B2C should only increase the overall margins.

What I see as a major differentiator between Priti and competitors is their ability to execute. Priti started in around 2007 and made its way in an area where differentiation is really difficult and where there were established players.

Also, handicraft products - They have handicraft products in their product mix. This segment is labour intensive and fixed assets are not required.
Rajasthan has a lot of companies which are in wooden handicraft business but most of them are not listed. Handicraft is a hit or miss business. Its about securing good buyers in Europe or America.

[Vatsal_Maheshwari]

Dec results are out. Any reason why the sales fell? Could it be due to the tension in hamas? The margins seem to have expanded?

[Take_The_Walk]

Their revenue consists about 40% export. So, red sea crisis could be one of the reason. That must have led to revenue growth. Still they did good job by improving margins in falling revenue.

[chikspat]

Take_The_Walk agree with you.
Margin should be at least 17% onwards as last two quarters. If company grows with similar margin and revenue as in past. Estimated EPS for FY 25 is approx. 14 rs.
Promoters also converted warrants issued at 98 rs. which gives company approx. 13 crores, which will be available to expand.

Disclosure: Entered yesterday

[Take_The_Walk]

I am not sure about maintaining such margin. Its not clear why this margin improvement is happening? Is it export, higher negotiation power or something else. Lets be hopeful that red sea crisis gets resolved. Export brings higher margin. Plus margin contraction QoQ looks like the affect of export decline due to red sea crisis. My main focus is on Brand building. It is still based on one city and still unknown to majority.

[sivareplies]

Comparing to the quarter ended on Dec’23, Priti has delivered some good lots within india on Q1 2024 sofar as below (Reference taken from Priti’s Twitter page);
Hyderabad Airport - First lot delivered on Jan 30
Class room furnitures supplied to Bharat dynamics ltd on Feb 01
Modern office Furnitures in Bangalore on Feb 02
Furniture supplied to National Institute of Science, Bhubaneswar on Feb 07

Referring to Q3 result, page 2 - Expenses IV.C - Inventories of finished good /work in progress mentioned as 4.5 Crores (almost 20% of sales revenue) → Probably, this should be part of the above order delivered.

Therefore, we can Waite for the year end annual report to see status of the sales growth and future guidance, and order book.

[Aloysius_De_Sa]

This company is definitely an underdog. Dedicated husband and wife team working hard on their project. Into the furniture space that is highly unorganized and with rise in disposable income, growth of organised premium sector will rise. Stock has been increasing PAT yet has fallen from 280 highs. Comparison to last year q3 revenues is being made although the revenues were extraordinary and doesn’t seem to match the actual growth curve. Here lies the arbitrage opportunity for investors who understand this.

[Aloysius_De_Sa]

Hello Nimit. The google Maps review led me to investigate since a company that doesn’t treat a customer well will not grow. the reviews are 4.1 which is rather decent and The reviews show that many bad comments come from people with Taufeeq as their surname, which could mean some agenda is in play and could be personal enmity. But yes, it would be better for company to refrain from giving back as it spoils their image.

[Karthick_S]

It has come to my attention that there has been a gradual reduction in Priti Promotor holdings, coupled with an increase in public float. As an investor, this trend raises concerns, particularly for micro-cap companies.

When promoter holdings decrease and public float increases, it may indicate a shift in control and ownership dynamics within the company. This could potentially lead to changes in management decisions, corporate governance, and overall company direction.

For micro-cap companies, such fluctuations in ownership structure could have significant implications on stock performance and investor sentiment. Therefore, it is imperative for investors to exercise caution and closely monitor these developments.

As shareholders, we need to remain vigilant and proactive in understanding the reasons behind these changes and their potential impact on the company’s long-term prospects. Additionally, we should seek transparency and clarity from the company’s management regarding their strategic plans amidst these shifts in ownership.

In conclusion, while observing reductions in promoter holdings and an increase in public float, it is crucial for us to adopt a more cautious approach and stay informed about the evolving situation.

What are your thoughts on this matter? Has anyone else noticed similar trends in other micro-cap companies?

Let’s discuss and share our insights.

[akash_das]

Warrants conversion to equity may have caused this reduction. Insider trade is not showing any market selling activity recently.

[Deon610]

The trade receivables seem to have increased sharply for past 2 FYs. Does any know if this is in tune with what other business in the same industries also have?

[Sourav1]

PRIT INTERNATIONAL LTD DOWNLOAD THE RESEARCH REPORT FROM THIS LINK.

https://drive.google.com/file/d/1ZfGd4u4iJ7NDkOkgtdwu_q0vY4cAF6-d/view?usp=drivesdk…

DISCLAIMER: I AM NOT SEBI REGISTERED RESEARCH ANALYST/ ADVISOR.

THIS IS JUST FOR EDUCATIONAL PURPOSE.