Highlights from earnings call
- Q1 FY’23 performance was adversely impacted due to the unprecedented levels of high raw material prices, inventory correction
being undertaken by major retailers across markets, a softening of demand and continued supply chain disruptions. - Capacity utilization is quite low due to above. So, capex plans are put on hold.
- Overall revenue came down by about 15-20%
- Going to be challenging for coming 2 quarters due to clients doing inventory correction, supply chain issues and rising inflation on raw materials
- Last quarter was a loss of 54 Cr vs a profit of 82 Cr in prev year
- There is a slight increase in debt level
- Mgmt says it has never seen this level of inventory correction & inflation since last 15 years.
- Mgmt frankly admitted that they were unable to bring leverage levels down, but are aggressively working towards it.
- Expecting the FTA with UK to be a positive development for textile industry
The theme of investing is as follows:
- Good Management which seems to know what they do
- It is a tough time for the industry and the valuations are attractive if we look at a 2-3 year horizon. This is not for people looking for quick turn around at this point.
- A lot of capacity is unutilised at this moment. So, the company can claw back to high revenue realisations without much capex. Furthermore, the already planned capex will come into play after the demand picks up.
- TTM PE is quite high. For cyclical companies, this is the right time to pick the stock as earning pressure will ease out in coming quarters.
Things to watch:
- Industry cycle, cotton prices and capacity utilisation across other players
Disc: Invested. Might nibble a bit more.
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