First of all management has done tremendous job in last 6+ years by growing the business to current levels using only internal accruals and not through debt or issuance of new shares. Very few sub 350cr market cap businesses would have the balance sheet like Rubfila.
The biggest challenges faced by the business has been 1) wide price difference in latex in domestic vs other south east Asian countries where prices have been lower than India 2) the inverted duty structure of higher duty on raw materials and lower duty on rubber products. Rubfila still managed to overcome these challenges and became the industry leader in India for Heat Resistant Latex Rubber Thread (HRLRT) market which shows that there is something special about the management and the way they do the business.
With the recent run-up in prices from 50 odd levels in May to current levels of 80 – market is pricing in some future growth. It is not a net-net bargain. So it becomes very critical to check if the recent rally will be short lived or there is something big in here. While I am pretty convinced that management is excellent with their skin-in-the-game, below are the few things where I struggle and would like to dive deeper for better understanding which shall help to get an idea for how big can it get in next 5+ years. Below items need some scuttlebutt work:
- Why would biggest garment industry domestic customers of Rubfila not buy rubber threads (RT) from Rubfila but import cheap from south east Asian countries? What is the current price difference between RT of Rubfila vs imported RT?
- Can Spandex be a substitute of RT and garment manufacturers move 100% to Spandex in future? In short – can Spandex or any other alternative substitute kill RT?
a. Note from FY2015 AR – The growth in the elastic market is shared between rubber threads and spandex with major growth going for spandex. Spandex being a product of the petroleum chain, the cooling of the crude oil prices has resulted in lower prices helping in spurring the consumption. - Does Rubfila produce Spandex today? I have not seen this in their last 5 annual reports.
- How big is the domestic market for RT in textile industry?
- How big is the domestic market for Spandex in textile industry?
Disc: currently not invested but exploring answers to above questions.