Multibagger: Welspun India

Investment Argument
Welspun is Asia’s largest and amongst world’s top four terry towel manufacturers with capacity of over 40,000 MTs with acquisition of brands like Christy, UK [Exclusive supplier to Wimbeldon Tennis championship] under its fold and global network of sales [ in 32 countries] for
Home textiles. It also has over 40 mill. Mtrs capacity for Bed Linen and small capacity of decorative beddings. Company is preferred supplier to 14 out of the top 20 world’s largest retailers due to its cost, quality, innovation and designing capabilities. Recently it has demerged its subsidiaries, (unlocking its value and focusing on core business), into Welspun Global brands [which is marketing arm] and Welspun investments Ltd [which has investments and treasury].
The financials of the company give a positive outlook with Q-1 sales and earnings indicating, significant improvement in working results of current year. Cash earnings of company are very strong even last year. Another positive for the company is that it is located in tax benefits zone. Valuation wise, for Market Cap of Rs 378 Crs, one is getting company with sales of Rs 1700 Crs and cash profit of Rs 225 Crs [2010 expected]. It is discounting expected earnings by 3X and cash earnings are discounted by less then 2X. With global sustainable business, stock has potential to appreciate significantly. Increase in promoters holding by 2.1% in last quarter shows the confidence of the promoters in the company’s growth potential.

Background
Welspun is Asia’s largest and amongst world’s top four Home textiles company with Towel capacity of over 40,000 MTs and Bed Linen capacity of over 40 million MTs. It also has small capacity of decorative beddings. It also acquired a company in Mexico as also in Portugal, to widen the manufacturing capacities as also to achieve wider global reach. With acquisition of brands like Christy, UK [Exclusive supplier to Wimbeldon Tennis championship] under its fold and global network of sales [ in 32 countries] for Home textiles. Company is preferred supplier to 14 out of the top 20 world’s largest retailers due to its cost, quality, innovation and designing capabilities.Recently it has de-merged brands & investments in to seperate subsidiaries, (unlocking its value and focusing on core business), into Welspun Global brands [which is marketing arm] and Welspun investments Ltd [which has investments and treasury].
With Portugese acquisition, company will get access to 44 countries in US & European region, for marketing its products. Similarly Christy acquisition will bolster the branded product sales in western markets.

Risks and concerns

With major revenues coming from exports, the currency fluctuation risk is always there. Plus due to initial stage of global operations, resulted in to losses which is reflected in consolidated loss for last year [3/09] Sharp fluctuations in raw materials like cotton and fuel, also affects the margins, particularly if moves against gravity. Competition from other major global players from China or Pakistan may also affect margins.
Recommendation
Valuation wise, for Market Cap of Rs 378 Crs, one is getting company with sales of Rs 1700 Crs and cash profit of Rs 225 Crs [2010 expected]. With significant growth potential and sustainable global business model, it looks dam cheap. Discounting expected earnings by 3X and cash earnings are discounted by less then 2X. BUY.

Source: Internet (Valuenotes by Anand Rathi)

Stock Idea: Repro India Ltd

Repro India Ltd (Rs 93)
(BSE Code- 532687 NSE Code- REPRO)
(P/E- 6, Promoters'stake-69% Market Cap- 97 cr.)
Repro India Limited is one of the few integrated print solution provider and a manufacturer and exporter of books in the highly fragmented printing industry. Its solutions include content management, configuration to content delivery and the entire supply chain for publishers. The Indian Printing industry has managed to grow at a CAGR of 14% over the last 25 years. to touch Rs 1100 cr.. That is almost twice the GDP growth rate. Repro has successfully evolved from a printing press to an end-to-end print solutions provider. The company provides value-added printing and prints related solutions to major publishing houses, corporates and software companies. The clients of the company include publishing houses such as Alligator Books, Macmillan, Orient Longman, Oxford University Press; software companies Microsoft, Oracle, IBM; and Indian corporates including Tata Steel, Infosys, Wipro etc. RIL had come with an IPO in November 2005 at Rs 165 per share and raised Rs 43.2 cr.. RIL's equity stands at 10.47 cr. out of which promoters hold 68.78% while the public holding is 15.19%.
Through content process outsourcing, Repro offers content, creativity and designing. It provides desktop publishing, ideation, content creation, designing, illustration and copywriting. Content Process outsourcing is another large opportunity for India and holds great potential as we have a low cost talent pool, design and creative capabilities and knowledge of English language. Countries like USA and the UK, which are considered among the largest markets for printing industry, are increasingly looking at outsourcing to low cost countries such as India. Repro offers print solutions for educational and children's books for the publishing industry and annual reports and other corporate print solutions for corporates. Digital printing is utilized for IT industry and print on demand (POD). It also services the insurance industry through POD. Repro is also into contractual publishing-magazine printing and others like replication of CDs and stock management activities
For the Q1 ended June 2009, Repro posted net profit of Rs 2.6 cr.(down 49% due to forex losses and higher depreciation) on net sales of Rs 47.23 cr. (up 7%). Repro had posted a healthy 57% growth in topline to Rs. 241 cr, for FY09 while net profit grew just 6.5% at Rs 16.55 cr. (up 6.5%) due to forex losses of 16.5 cr.. On an equity of 10.47 cr., the EPS stood at Rs 15.75 and the dividend declared is 25%. Almost 35% of the company's turnover comes from exports. Its exports business holds significant revenue upsides as it shifts focus from straight printing to content process outsourcing (CPO). As the company would be focusing on CPO for its foreign clients it expects margins to grow in future. The expansion at Surat SEZ and Vashi units will also bring benefits this year. Going forward, the company expects its topline to grow by 20% in FY010 and OPM is expected to be around 18%. As the company scales up its business and sets up infrastructure to support its expansion in the exports market, it expects higher realizations in the years to come. The Repro stock appears attractive, as it is valued at about 6 times expected FY09 earnings. On account of increasing contribution from higher margin businesses and attractive valuations, the stock holds good potential for appreciation in the medium-long term. Accumulate.

Source: Internet (Valuenotes by Sanjay Chabria)

Stock Idea: Gitanjali Gems Ltd.

Gitanjali Gems Ltd (Rs 117)
(BSE Code- 532715 NSE Code- GITANJALI)
(P/E- 6, Market Cap- 994 cr., FY09 Sales- 5,088 cr.)
Gitanjali Gems (GGL) is an integrated diamond and jewellery manufacturer and its operations include sourcing, cutting and polishing roughs into diamonds and the crafting of diamond and other jewellery. The company derives nearly 85% of its revenue from sale of cut and polished diamonds, which are mainly exported. The remaining 15% of the revenue comes from the sale of branded jewellery in the domestic market and export of jewellery in the international markets. Exports account for around 70% of total sales. The company sells jewellery in India under four major brands: Gili, Nakshatra, Asmi and D'Damas. These brands are well established in the market and feature in top 10 best-known jewellery brands in India. Gili and Nakshatra are acknowledged as super brands. For branded jewellery, GGL has established a large retail setup, which includes 26 exclusive distributors across India, around 620 outlets including those in host stores, five standalone stores and 17 franchisee stores in 30 cities and towns in India. Currently, Gitanjali has 150 large (exclusive) stores and is planning to increase it to 450 shops in about 12-18 months with an investment of over Rs 300 cr. The group has established a strong presence in the US where it operates 143 retail stores through its acquisitions of Samuels Jewelers and Roger Jewellers. Besides, it has built its footprints in China where it has business tie-ups with 35 local stores
Gitanjali is a top player in the branded jewellery market; the only other player with a significant national footprint being Titan Industries', Tanishq. Gitanjali, however, leans towards the premium end, with an emphasis on diamond jewellery. Brands include the high-end Nakshatra and D'damas, daily wear Gili and Asmi, bridal collections Vivaha and Maya, pure-gold Collection G, and couples collection Sangini. Most command good brand equity, and the infancy of India's branded jewellery market will allow it to make the most of the opportunities thrown up as the market develops. Distribution is through `shop-in-shops' housed in malls, independent jewelers, besides exclusive stores. The domestic branded jewellery business appears very promising for the company at this juncture; a focus on premium jewellery leaves it less susceptible to cutbacks on spending by the mid-lower income groups.
GGL has a unique business model that places it in a distinct position in the gem & jewellery and retail businesses in India. The retail sector in India is currently estimated to be US$ 200 billion, out of which only 3% is made up by organized retail. However, this segment is growing swiftly and over the next few years a very large shift from unorganized retail to organized retail is expected. GGL is also diversifying and has already started building its presence in lucrative businesses like infrastructure and lifestyle. GGL had set up a wholly owned subsidiary Gitanjali Lifestyles Ltd (GLL) on May 04, 2007. It is being positioned to facilitate and to promote the growing luxury malls across the growing luxury retails markets. For Gitanjali, a rising proportion of domestic retail sales (as opposed to exports), a shift in product mix towards jewellery (from low-margin polished diamonds) and diversification moves suggests reasonable growth prospects over the long term. The company's presence across the value chain allows sourcing from both the Diamond Trading Corporation and other mines (helping better cost control), while forward integration in the jewellery business (from processing of rough diamonds into jewellery, branding and retail) lowers business risk and allows better margins than pure diamond exporters.
For the Q1 ended June 2009, GGL's net sales stood at Rs 1,352.16 cr.(up 11%) and net profit stood at Rs 45.44 cr. (up 9%) on consolidated basis. GGL's FY09 consolidated net sales were at Rs 5,088.87 cr. versus Rs 4828.05 cr.. Its FY09 consolidated net profit was at Rs 150.58 cr. versus Rs 160.69 cr... On a equity of 85 cr.(Promoters' stake-50.99%), the EPS stood at Rs 17.7 and the dividend declared is 18%. The current price of Rs 117 discounts its consolidated FY09 EPS of Rs 17.7, by a PE multiple of 6.6 and its FY10E EPS of Rs 19.5, by a PE multiple of 6 . Over FY02-FY07, GGL has established world class scale in diamond and jewelry manufacturing, clocking 28% revenue CAGR and 36% PAT CAGR. Gitanjali's broad product range, strong brand equity and significant retail presence along with sight holder status and strong network have enabled it a strong hold in domestic and international markets. With a wider product range and potential to tap the premium end of the market through tie-ups with international retailers, Gitanjali is likely to make larger strides in the domestic retail space. The stock holds good potential for appreciation in the next six months. Accumulate.

Source: Internet (Valuenotes by Sanjay Chhabria)