SP Apparels Ltd Initiating Coverage Research Report By IndiaNivesh

SP Apparels Ltd, Coimbatore based company, is second largest manufacturer and exporter of knitted garments for infants and children’s in India. It is one of the leading suppliers for few of the international brands like TESCO, ASDA Stores (Walmart organisation), Primark, Mothercare & DUNNES etc. Also, they are licensed manufacturer and retailer of menswear garment in India under “Crocodile” brand and the business is done in subsidiary company – Crocodile Product Private Limited (CPPL). Company did revenue of Rs 5328.25 mn in FY16, of which 86.13% was exports from children’s wear with volume of 39.1 mn pieces.

At CMP of Rs 326, the stock is trading at 14.5x and 10.5x of FY17 & FY18 expected EPS of Rs 22.3 and Rs 30.9. We believe the company is at inflection point as they were not able to exploit their potential to the fullest due to illiquidity factors and currency derivatives issues that they faced in the past, which are no longer there now. So valuing FY18 EPS of Rs 30.9 at 15x would give us target price of Rs 463 (upside potential of 40% from the current market price). The re‐rating would happen due to growth coming back in business and financial position improving due to fresh capital reducing D/E ratio to 0.5x in FY17E compared to 2x in FY16. Hence, we initiate BUY rating on the stock.