Dollar Industries Ltd IC Research Report By SMIFS

DIL: Fastest Growing Lifestyle Innerwear Company

Stewart & Mackertich Research initiates coverage on Dollar Industries Limited (DIL) with a Strong Buy rating. DIL Established in 1972 by Dindayal Gupta as a proprietorship, the company was incorporated in 2005 as Bhawani Textiles, and then renamed as Dollar Industries in 2008. It began its journey with its signature brand “Dollar” in men’s vests and briefs.

Now, it has a wide range of men’s, women’s and kids’ innerwear. It has been given the status of an “export house” by the government of India. From just being a men’s innerwear company, it has made a foray into women’s innerwear and outerwear, kids’ innerwear and other categories such as thermals.

Investment Rationale

Dynamic product portfolio: Dollar captures the whole economic pyramid at a stretch. The major portion of the sales pie is contributed by premium and super-premium segment i.e. 66% while the economy range contributes 34% of the revenue which is their bread and butter in terms of revenue; The Company is trying to capture the market share of unorganized players suffering from GST and demonetization effect.

We expect all the organized players (Lux, Dollar, Rupa etc.) to increase market share due to greater brand recognition in their traditional markets and loss of market share of the unorganized players.

Dollar will grow faster in the premium & super premium segment as the company has entered into a 50-50 joint venture partnership with the well-known brand ‘PEPE Jeans Europe B.V’ under the name ‘PEPE Jeans Innerfashion Pvt. Ltd’, for the sale and distribution of innerwear and loungewear which includes gym wear, track suits, and sleepwear.

This JV would undertake the business in the different territories of India, Sri Lanka, Bhutan, Nepal, and Bangladesh.

Distributors, MBOs and EBOs:

The Company currently associated with 850+ distributors and 75000+ MBOs and also planning to come out with EBOs soon. They are expecting 5% growth in terms of distributors and 10% growth in terms of MBOs YoY basis. Dollar offers higher incentives to distributors to drive sales compared to its immediate peers.

Backward Integration:

The Company has invested in progressive backward integration – from the consumption of raw cotton to final product delivery. The Company has manufacturing units with an environment-friendly infrastructure and also invested in 5- megawatts wind energy at its Dindigul facility to meet the growing demand for renewable energy.

Besides, the Company has also invested in a 1000-kilolitre eco-friendly effluent treatment plant which has resulted in ‘zero liquid discharge’. They are one of the few players in the industry who has their own spinning, Knittng, Dyeing & Bleaching facilities with the capacity of 400 tonnes, 300 tonnes and 300 tonnes respectively per month.

It also has the Elastic production capacity of 10 lacs meter per month and Cuttng capacity of 3 lacs pieces per day.

JV with a global giant:

The Company has entered into a 50:50 JV with “Pepe Jeans” in August 2017, and is expected to launch its products soon. This partnership requires a capital influx of INR200 Crore with Dollar and PEPE to invest INR36 Crore each over a period of 4 years and the rest to be funded by banks as a working capital loan.

In this JV management is guiding for an EBITDA margin of 18%. This partnership will give its products an exclusive access to Pepe’s 350 shop-in-shop, 250 EBO’s and more than 1,100+ A rated MBO’s across the country apart from traditional channels of Dollar Industries Ltd.

Valuation:

On the back of favorable policies by the government towards development of businesses in India coupled with aggressive organic and inorganic growth, Dollar Industries is expecting a healthy growth of 15-20% per year for a period of 5 yrs.

Aggressive brand building exercises would lead to the Company accruing 15% EBITDA in a period of next 3 years. Internet penetration and urbanization are the key areas which Dollar Industries is targettng in order to carve out a market share in the premium and super-premium segments with the help of ecommerce, modern outlets, and EBO models.

The Company is radically trying to change the way it operates by transforming itself to a value-driven, innovation inspired, asset light and brand powered company. We assign a P/E(x) multiple of 36.10 on FY20E EPS, to arrive at a target price of INR656.