Key points discussed shared in AGM held in Mumbai on September 1 2015:
1) CFO explained about qualification on related party borrowing. He said that the company has received an export order which resulted in higher working capital requirement and the order was expected to be executed in short time. It would have been difficult to arrange the funds from banks etc at such a short notice and decided to borrow from related parties. The funds were paid back. They acknowledge that it was an error and assured that in future they shall not face such issue in view of extended limit with working capital banker.
2) The current capacity utilisation is around 80%.
3) Currently nearly 60-70% exports of the company are to Vietnam. The company has faced capacity constraint and decided to service export market. Once Vietnam capacity is operational, the Indian capacity would be utilised more for domestic market. In the current quarter, company expect significant jump in domestic sales. FY16 topline the company give a very large range of Rs 85-100 Cr sales. Vietnam plant would take around 6-8 months for completion. The company internal target is to start production by April 1 2016, and in case every thing work as per plan, the completion date may be preponed.
4) Market size: The company compete on superior quality of product. The CFO said that in last 5 years, the company increased sales from 20-73 Cr. He think that company can maintain same growth rate in next 3-4 years. In the chairman speech, although Mr. Ashok indicated growth rate of 10-15% YOY for the current year, which does not match with the CFO projection. However, Mr. Ashok appears to be more conservative in his approach then CFO and would not be personally suprise if CFO figures are translated in reality.
5) There was concern about 15% stake being given to Mr. Sushil Rajwani. The CFO said that the company association with Mr. Rajwani is very long and they are comfortable with Mr. Rajwani being the partner. They are looking at possibility to induct in Premco Board Mr. Rajwani who in their opinion expert in this business. There were some tax and local regulatory issues which could be best addressed by having associate like Mr. Rajwani.
6) Product mix: Currently 90% of company sales is Woven elastic while 10% if knitted elastic. Of Rs 67 Cr sales in FY15, nearly 62 Cr was woven elastic and balance 5 Cr was knitted elastic fabric.
7) Investment in MF: The company has Rs 10 cr investment in MF. There was concern about investment in equity and equity related mutual fund by some investor. The CFO explained that only 30% of MF investment was equity linked and balance was in debt/liquid fund. The 30% investment in equity was also to maximise return from investment. He also suggested that the company is borrowing cost is around 10-12% while debt fund yields around 9-10%. Hence, by investing in equity funds, he intends to at least cover for cost of borrowing.
8) The contribution margin is depend on thickness of elastic tap. During FY15, realisation per mt of elastic increased from ~Rs 6 /mt to Rs 7-7.5/ mts. In Vietnam, they expect realisation of around Rs 8-9/mt. A 1 rupee increase in realisation tranlsate in 2 Cr increase in net profit annually. The company has policy to hedge all its receivable and does not intend to gain from forex movement.
9) Investment in Vietnam plant: On completion Vietnam plant would have 6 Cr Mts p.a. capacity which is around 50% of existing company capacity. In phase I,the company invested USD 1 million (~ Rs 6.5 Cr).From first phase, the company expect to achieve peak sales of Rs 25-30 Cr.(Realisation of Rs 8-10 / mts). Further, in order to achieve this sales, the company would need working capital of around 20-25 Cr over 2-3 years.
10) There was query about change in raw material mix and impact on same on margin. That query was answered at the end by Mr. Lokesh. He said that over past few years, the company has dones various operational development which allows it to replace nylon (expensive input) with finer counts polyester (cheaper input) without affecting quality. Globally, there has been trend to use more polyester input driven elastic. Mr, Lokesh expect same trend to come to India over a period of time. While the competitor would be able to catch -up with increased use of polyester, it would take at least 2-3 years time which give unique advantage to Premco in local market.
11) Premco supplies to most of hosiery producer like Lux, Doallar, Amul in India. Page Industries in India have their own elastic plant and have very small quantity purchased in which Premco also have tiny share. However, they do exports to Hanes and also to Jockey international in export market.
In summary, we can expect continued growth in sales and maintained margin in FY16 for Premco Global. Vietnam plant operationalisation would be key moniterable event for the company.
Other valuepickr member may also submit their view.
Thanks
Discl: I hold shares of the company and my views may be biased.
| Subscribe To Our Free Newsletter |
