I found the management quite bullish on this concall, which is different from the usual very conservative style. They maintained their stance of ‘stable demand outlook with an upward bias’ whilst answering all questions.
- In further questioning, they sounded more bullish when guiding that capacity utilisation should reach in high 90’s before 3 years from high 60s currently. When I asked them about triggers for this on the call (below), their reasons were pretty well outlined, though obviously it still has to play out.
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On debt, they are happy to work on it to reduce it year by year, rather than doing something like raising capital at these valuations.
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IMO, valuations are very attractive versus peers still for the kind of business/management this is purely because of above debt. Versus the likes of Welspun/ICIL, I think Himatseide can do some good catching up on P/B P/S in case they are able to pare down this debt (even if in a longer timeframe/maybe dilution at better than current valuations over time in a favourable business environment)
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There is significant capacity headroom here without needing Capex in case a bull cycle is coming with all the triggers in the sector (coming out of destocking, issues with Chinese cotton ban, Pakistan industry issues, potential FTAs, new products/divisions, domestic product launch). Currently capacity utilisation for them is in the high 60s.
Essentially, I invested as I thought in the next few years the R/R was favourable and there is a chance of the dual engines of earnings growth + multiples expanding in case the situation plays out for the company.
Disclosure : Invested as core PF position in self and family accounts and hence I am biased. I am not a registered SEBI advisor and this is not investment advice. I have made transactions in the last 30 days at lower levels.
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