Cantabil Retail – undiscovered gem?

This is retail clothing company, with improving profits and fundamentals over the last 3+ years but steadily suppressed PE. Therefore I thought I should start a thread here so that other people can also contribute and explore the company.

After a bit of research from my end, I am putting here some info that I took from screener (with some edits to make it more readable):

ABOUT:
Cantabil Retail India Ltd was incorporated in 1989 and started its readymade garments manufacturing and retailing business in the year 2000.

KEY POINTS:

Revenue segmentation
Men’s Wear (86%) – Formals, Casuals, Ultra Casuals, Woollen, Knitwear
Women’s Wear (9%) – Shirts, Tops, Leggings, Kurtas, Kurtis, Capri, Pants, Jeans
Kids Wear (2%) – Shirts, T-shirts, denim, trousers, Culottes, dresses, tops, jeggings, shorts
Accessories (3%) – Innerwear, Belts, Socks, Ties, Handkerchief, Deo, etc.

Manufacturing Capacity
The company has established a 1.5 lakh sq.ft. state of an art manufacturing facility in Bahadurgarh, Haryana with a capacity to produce 10 Lakh garment pcs./p.a viz, equipped with best brand machines from JUKI, Durkopp, Brother, Ngai Shing, Kansai, Pfaff, Maier, Siruba, Sako and latest finishing equipment using hot and cold steam foam finishers from Veit and Macpi.

Distribution Network
The company sells its products under its brand Cantabil, Kenaston, Crozo, and Lil Potatoes through 378 Showrooms/ Stores and 414 Outlets in 18 states.

Asset Light Model
The company operates with an asset-light model wherein only about 1/3rd of the apparel are manufactured in-house at its fully integrated facility in Bahadurgarh. And sources another 1/3rd of its requirements from dedicated job workers and the balance ~1/3rd is purchased on a FOB basis directly from manufacturers.

Focus
The company is focused on expanding via brick-and-mortar stores in the country especially targeting the tier 2 and tier 3 cities and towns where it gets to take advantage of the first mover benefit.

Concall Notes – May 2023

Summary:

Financial Performance:

• Cantabil Retail India Limited achieved a milestone by crossing the Rs. 500 crore mark for the first time, resulting in increased EBITDA and PAT in FY23.
• For Q4 FY23, the company registered Rs. 173 crores of sales, a growth of 29.90%, and a PAT of Rs. 16.88 crores, a growth of 107.88%.
• The company’s ROE for FY23 has crossed 30% and ROCE is 47.22%.

Sales and Growth Plans:

• Cantabil has grown with a CAGR of 23% and has 453 showrooms in 19 states and 220 cities, making it a mid-premium segment brand.
• The company has a target of sales worth Rs. 1,000+ crores in the next 3 years with a 25% CAGR growth.
• Cantabil has opened 69 new stores in the last financial year and plans to open 6 to 7 new stores every month, with a majority of them in Tier-2 and 3 towns.
• The company is targeting 5-6% same-store sales growth in the next financial year, which will lead to an increase in revenue per store by the same percentage.
• The potential revenue per store in the next 3 years is estimated to be around Rs. 1.8-2 crores.
• The company is targeting a 20% EBITDA margin pre-IndAS and 30% post-IndAS, with potential to increase by 1-2% year-on-year.
• Cantabil plans to maintain profitability in the e-commerce space and target at least 10% PAT from it.
• The company targets a gross margin of at least 55%, but the potential for more exists.
• Cantabil has a ratio of 70% company-owned stores and 30% franchised-owned stores and plans to open around 80 stores per year, targeting 700 stores in three years.
• Cantabil plans to have 700 stores and approximately Rs. 1,000 crores in sales by the end of three years in March 2026.

Store Formats and Sales:

• The company’s sales are currently 85% men’s wear, with the remaining 15% split between ladies’ wear, kid’s wear, and accessories.
• Cantabil is opening exclusive stores for ladies’ and kid’s wear, which will increase sales in those categories, but the percentage of men’s wear sales may still remain high.
• Cantabil will continue to focus on exclusive brand outlets and online e-commerce business, with a mix of men’s, men’s and ladies’, family, and ladies and kid’s stores.
• The ratio of store formats may change slightly, with the possibility of an increase in family and ladies and kid’s stores.

Other Plans:

• The company’s e-commerce business is growing well, and they target exponential growth this year, with an overall turnover to reach around 6 to 7% of the total turnover in the financial year 23-24 and further 8 to 10% in the FY24-25.
• The company is investing in a new office building with a CAPEX worth Rs. 45 crores, with around Rs. 25-30 crores to be invested in the current financial year.
• Cantabil has achieved a gross margin of 56% for this financial year, up from 55% last year, and aims to maintain this high level.
• There are no plans for price hikes in the coming year.
• The company is targeting inventory control between 130-135 days and working capital between 95-100 days.
• The company’s End of Season Sale runs for a total of 12 months, with 4 months at buy 2 get 1 free, 2 months at 50% off, and 6 months at buy 2 get 5.
• The company’s store economics involve a target of 55% gross margin, with store cost mainly consisting of rent and salaries at around 30% of retail cost. The company aims for a 20% EBITDA margin at the company level.
• Cantabil is debt-free, and the lease liability shown in the balance sheet is a notional adjustment due to compliance with IndAS 116. The company plans to keep its debt-free status and may consider increasing dividends in the future with surplus cash.
• The company is focusing on increasing same-store sales growth by continuously improving the average bill value, assortment planning, and staff training and development.