My view – Open for discussion and feedback from veteran boarders.
1. I feel results are pretty decent from all angles, sales for H1 is flat as compared to H1 last year despite delayed festive season this year. This means most probably we will see far better Q3 results.
2. Operating margin for H1-2014 was 10.20% (15.81/155.35) which has increased to 11.29% (17.20/152.33) in H1-2015. Company had already indicated in their AGM that they are expecting margin to grow 1-1.25% annually and that it will peak out at 15-16%.
3. PAT figures have increased by Rs. 8.1 crores from Rs. 9.04 crores in H1-2014 to Rs. 17.15 crores in H1-2015. This is due to increase of interest income by Rs. 2.5 crore, reduction in interest cost by Rs. 1.8 crores, diff in provision for tax by Rs. 2.4 crore and rest is 1.4 crores increase in operating income. In my view except Rs. 2.4 crore of provision for tax, rest 5.7 crore is genuine increase partly due to operating margin increase and partly due to financial structure change.
4. ROCE part- ROCE for H1-2015 is very healthy at 27% approx. (Avg Capital employed is Rs. 125 crores and EBIT is 17.20 crore for half year.)(Capital employed = Cap + Res + Long term loans + short term borrowings – Current investments.) For me any that generates more than 24% ROCE, ie., > 2% per month is good model for investment, irrespective of whether is cash and carry or last mile investment model.
5. Valuation – Due to delayed festive season, Q3 is expected to be very good, but even if it turns out to be decent growth, we can easily see 42-45 EPS for full year. (EPS of H1 is Rs. 24). So at cmp of 630, its still trading at just 14-15 PE multiple of FY16 earnings.
6. We may see some positive revenue surprise from their Indian Terrain Boy brand, their new accessories launch or effect to TV commercials. That’s all additional benefit.
7. The only point that I think is not their best decision is to buy that property of Celebrity fashions. That will unnecessarily reduce that ROCE and profitability. Anyways, considering the fact that there are benefited much coz of captive manufacturing by Celebrity and fact that celebrity is in needs of funds, it seems ok.
8. Also one more point that I consider as positive point is recent entry of few visionary investors in this counter, BSE bulk buying shows Indian terrain has been bought by Kedia Securities, Malabar fund, and Om Kedar Investment (Prof. Shavanand Mankekar). (all at around 550 levels in month of January).
So to summarise, I feel there is much scope for business and valuation growth in near term in this counter.
Disclaimer – Invested at 600 level.
| Subscribe To Our Free Newsletter |
