Virat Industries Ltd – Sock Stock

@nityanandparab

I too find the story worth tracking at least as there are number of positives that exist in story. Few interesting points for me

• Virat has per pair realization upward of Rs.40/pair for few years while the largest players in the category (i.e. export of socks) Renfro India (an Indian subsidiary of Renfro which is the largest sock manufacturing company in world) has average realization in the range of Rs. 33-35/pair. Thus, company must be doing something right to command higher premium.
• Company with sales of 20 odd Crores in engaging Deloitte as their auditor. To me this is a big positive as it may indicate the management is very cognizant about its accounting/disclosure quality.
• Unlike many other players in the industry, company has maintained very decent margins (in the range of 15-20%) and very decent ROE. It’s cash generation has been in line with net profit consistently over few years indicating tight working capital management.
• It has recently launched Lord Walker brand mostly on online portals and in selective regions in Mahrashtra. Average price for pair of socks is around 150-180 per pair. I have ordered couple of pairs and the quality seems very good.

Few negatives
– Company’s topline has hardly grown in 3 years and volume have showed degrowth
– Company’s own brand’s pricing seems to be much higher than the other market players. Thus, it remains to be seen how this strategy works. Other dominant players in the domestic market are Bonjour & Mustang
– It is also to be noted that the industry dynamics in domestic socks market is very challenging due to existence of multiple small players giving the same offerings. Thus, the “brand pull” may just not work
– In Sep 15, the receivables has gone up sharply. though, the reason for same is not yet known, it may be because of the “increased working capital cycle” in domestic market. If that hypothesis is correct, the working capital requirement may increase and it may bring down the return ratios and put pressure on it’s balance sheet

Disclosure: Holding tracking position @ average price of 55