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

My notes from Premco Virtual AGM from Q&A, held on 18 August 2022.

New Expansion:
The company intend to spent Rs 14 Cr on New Plant in Gujarat. In October 2022 they expect to finalise land. The installation and commencement of machinery would begin after land acquisition. Management expects around 12-18 months from land acquisition for commencement of plant which shall be in phased manner. They expect Peak revenue of around Rs 50 Cr from new facility. The new facility would address demand from domestic and export market. The capex would be funded by debt (taken at concessional interest rate Textile Upgradation Fund loan) and internal accrual, in order to get benefit of lower interest cost.

Q1FY23 performance:
The conflict between Russia/Ukraine and also China related geographical development impacted performance of company, particularly in Vietnam. Polyester and Nylon, key input for company also seen spurt in price due to higher crude price. While the company was attempting to transfer the increase to customer, it would take some time to pass on full hike to customers. The management expect to meet top line of FY22 in FY23 conservatively and aim to report higher top line, despite adverse Q1FY23.

Vietnam operations:
Profit Margin in Vietnam are high due to lower income tax rate. Income tax rate in Vietnam is around 8.5%. Currently, Vietnam plant is operating at around 70%, (Peak Capacity utilisation can be achieved is around 86%). In FY22, they reported sales of Rs 54 Cr and anticipate that maximum sales can achieve from this facility at around Rs 60 Cr. Once supply chain issue gets normalised, they may explore further expansion in Vietnam.

Other Points

• Do not intend to list shares in NSE in short term
• Would explore over suggestion of Share Buyback given the high cash balance
• India capacity can run at maximum level of 86%, as against current utilisation of 70%. Indian production is supplied in domestic as well as export market (US/EU/Bangladesh). In India, Lux, Dollar, Rupa and Van Heusen are the main customer for the company.
• Current order book is around 30 days, as against normal level of 60-90 days. Once the supply side issue are resolved, management expect order book to resume to normal level.
• Contingent liability increase in FY2022 was due to wrong assessment order by IT officer. The officer did not account for RM cost while calculating profit. The company has already provided necessary information to IT and expect same to be resolved without major tax liability at company end.
• Currently market share of company is less than 5% of global demand.
• 80% of the company revenue come from long term contract while balance 20% from spot business.
• Spica (missed other 2-3 names also mentioned) are competitor to the company in India.

Note: There may be error of miscommunication at my side while taking notes in the AGM meeting. Please note that I have tracking position of around 1% of equity portfolio in the company which I have invested in last 90 days. My view may be biased due to my holding. I am not SEBI registered investment advisor. I am not recommending any investment decision in the company. Investor shall do their own due diligence before taking any investment decision.