Key Indicators as on 20/07/2010 Closing Price (`) 38.50 EPS (`) 1.2 P/E 32.58 BV per Share (`) 57.20 PB 0.69 Mkt Cap (` Crore) 379.06 EBDITA (` Crore) FY10 107.58 Equity Capital (` Crore) 49.23 FV (`) 5 Share holding Jun-10 Promoters 53.67 Public 26.39 FIIs 3.26 Others 16.68 Himatsingka Seide Ltd. Accumulate Brief Profile: The company was incorporated in 1985 promoted by Ajoy Kumar Himatsingka and Dinesh Himatsingka and is based in Bangalore, India. It is engaged in the manufacture of textiles consisting of fabric and yarn. Their products include silk/blended fabrics, spun silk/blended yarn, bed linen fabric and bed linen sets. The company products are offered across Germany, France, England, Italy, South America, Australia and USA. The company was mainly into exporting its product but its thrust for growth made them enter into emerging domestic retail markets for home furnishings. In July, 2003 with the brand name "ATMOSPHERE" the company started its retail business by opening its first retail outlet in Banglore for selling home furnishing and which has now grown up to 14 stores located at Ahmedabad, Banglore, Chennai, 3 stores in Mumbai, New Delhi, Gurgoan, Hyderabad, Kolkata, Ludhiana, Pune and 2 international stores at Dubai and Singapore, during FY10 it contributed 4% to its total sales. The growth is also fueled with its foray into international bed linen and home textile market in the year 2004-05. The company has setup new production unit at Hassan SEZ at Karnataka at a cost of Rs.400 crores with an installed capacity of 20Million Meters p.a in the year, 2007 and has contributed ~33.98% to its revenue in FY10. To ensure uninterrupted power supply the management has setup a captive power plant at its Hassan unit which commissioned in March, 2010. Investment Rationale: Commissioned its cogeneration captive power plant with a capacity of 12.5MW and with an outlay of `.80 Crores which is likely to increase the PBIDTA margin by ~10% from the 1st quarter of FY11 itself. The income of the company would further increase as the company is planning to sell 6MW of power which would be generated from its new power plant in excess. At current market price of ` 38.50/- the share is trading at a discount of 48.57% when compared to its book value.
Increase in promoter s stake over the past two quarters as seen in the table below is a positive sign in an environment where most management have diluted promoter holdings. Promoters Name Mar Jun Sep Dec Mar 2010 Jun 2010 Increase/Decrease stake A K Himatsingka Huf 1.24 1.24 1.24 1.24 1.46 0.03-1.21 Shrikant Himatsingka 3.76 3.76 3.76 3.76 3.92 3.92 0.16 Leela Devi Himatsingka 2.01 2.01 2.01 2.01 2.38 2.38 0.37 Rajshree Himatsingka 4.13 4.13 4.13 4.13 4.55 4.55 0.42 D K Himatsingka Huf 3.81 3.33 3.33 3.33 3.83 3.83 0.5 D K Himatsingka 8.86 9.34 9.34 9.34 9.95 9.95 0.61 A K Himatsingka 3 3 3 3 3.45 3.86 0.86 Amitabh Himatsingka 1.02 1.02 Total 2.73 Took over and incorporated various companies/subsidiaries around the globe to fuel its growth in International bed linen market as shown in the table below: in Subsidiary Name Incorporated Country Holding Acq. Cost Business Himatsingka Wovens ` 5.75 Private Limited 2002-03 India 100% Crores Retail outlets in India Selling & Distribution Himatsingka America Inc April, 2004 U.S.A 100% - network in USA ` 67 Production and S&D of Giuseppe Bellora SpA Feb, 2007 Italy 70% Crores linen textiles Twill & Oxford LLC July, 2007 U.A.E 100% - Retail outlet in Dubai Divatex Home Fashions $ 57 Selling & Distribution Inc. July, 2007 U.S.A 80% Million network in USA DWI Holdings Inc. Oct, 2007 U.S.A 100% $ 30 Million Licenses for sourcing, marketing and distribution of brands Calvin Klein, Barbara Barry and Royal Sateen. Himatsingka Singapore Pte Limited Oct, 2007 Singapore 100% - Retail outlet in Singapore Improving performance of New Segments via Subsidiaries Y-O-Y PAT (` In Crores) 2004-05 2005-06 2006-07 2007-08 2008-09 -10 Himatsingka Wovens Private Ltd -0.64 1.02 2.53 0.78 2.41 1.62 Himatsingka America Inc 0.01 0.25 0.18-5.6-8.48-14.28 Giuseppe Bellora SpA - - 6.66-2.71-15.91-5.65 Twill & Oxford LLC - - - -2.26-1.83 1.11 Divatex Home Fashions Inc. - - - 16.3 5.87 13.39 DWI Holdings Inc. - - - 1.43-6.59 1.59 Himatsingka Singapore Pte Ltd. - - - -2.32-4.25-2.62 The management was in a position to turnaround most of its subsidiaries as seen from the above table.
Company has shifted focus from Europe to USA- likely to pay off. Company has broadened its product portfolio and shifting focus from traditional silk/blended fabrics, spun silk/blended yarn to bed linen fabric and bed linen sets.
Financials Consolidated (Pre acquisition and Pre Hassan facility results 2003-2006) ` In Crores Mar-03 Mar-04 Mar-05 Mar-06 CAGR Sales 125.95 132.94 149.97 162.04 6.50% PBDITA net of P&E 57.23 66.07 62.5 67.69 4.29% PBDTA 57.08 66.01 61.92 66.71 3.97% PBT 43.11 51.01 48.47 51.69 4.64% PAT 40.1 47.01 45.46 48.63 4.94% During this period the company use to enjoy high profit margins but had a slow growth rate. Financials Consolidated (Post acquisition of all subsidiaries and Post Hassan facility results 2007-2010) ` In Crores Mar-07 Mar-08 Net of Exceptional item ( Mar - 08) Mar-09 Net of Exceptional item ( Mar - 09) Mar-10 Sales 209.35 907.75-1039.59-1076.35 PBDITA 84.28 51.24-60.22-99.05 Interest 4.77 30.16 38.53-40.19 Depreciation 15.95 36.41-59.97-54.71 PBT 69.99-21.64 4.01-77.88-35.33 12.68 PAT 63.11-23.98 1.67-74.41-31.86 11.79 It would be incorrect to compare pre and post acquisition financials together. Since the business segment has changed. During FY08 the company incurred a loss on account of its derivative contracts ` 25.65 Cr which is an exceptional item and lower capacity utilization of the newly commissioned bed linen facility. The promoter group converted 10,24,000 Warrants into equity shares increasing the promoters holding by 0.50%. The equity capital of the company rose from ` 48.72 Crores in FY07 to ` 49.23 Crores. In FY09 it incurred a loss on account of derivative contracts ` 42.55 Cr and lower margins in overseas distribution entities due to the global meltdown both are exceptional item. 2,09,64,360 GDR s issued in 2005 were converted into equity shares in FY09. The last quarter of FY10 posted a loss mainly because poor EBDITA margin from trading activity and hardening of price of raw material like cotton and silk yarn.
~` 500 Crores of its sales are contributed from its manufacturing facility whereas the remaining comes from trading activity for FY10. The capacity utilization for FY10 is at 85-90%. Area of concerns: Risk of foreign exchange fluctuations as major part companies revenue are from foreign countries so any fluctuations in the exchange rate would hamper to companies profitability. Availability of raw material is also a key concern as its imports it raw material for silk business from China so any unavailability of raw material from its supplier will lead to halt of its production line. ~90% of revenue from USA and Europe where the economy is not only doing well but the outlook remains uncertain. Company in FY10 paid 40% of EBDITA as interest. Any further slide due to international factors in operating profit margin will put the company in a fix. Recommendation: Company should be accumulated for long term. Near term outlook does remain uncertain. However the valuations remain compelling for a buy. Company market capitalization is ` 384.97 Crores and EBDTA for FY10 is ` 67.39 Crores. The recent focus of management to change business by entering into retail and bed linen segments, improving profit margins by commissioning captive power plant at Hassan unit and their foresight for the future prospect of bed linen and home furnishing business looks promising. Buy with more then one year horizon. From NAYAN M. VALA SECURITIES PVT.LTD.RESEARCH By Dharmesh N. Vala & Harsh B. Chauhan Disclaimer: The information contained herein is confidential and is intended solely for the addressee(s). Any unauthorized access; use, reproduction, disclosure or dissemination is prohibited. This information does not constitute or form part of and should not be construed as, any offer for sale or subscription of or any invitation to offer to buy or subscribe for any securities. The information and opinions on which this communication is based have been complied or arrived at from sources believed to be reliable and in good faith, but no representation or warranty, express or implied, is made as to their accuracy, correctness and are subject to change without notice. NAYAN M. VALA SECURITIES PVT.LTD. and/ or its clients may have positions in or options on the securities mentioned in this report or any related investments, may effect transactions or may buy, sell or offer to buy or sell such securities or any related investments. Recipient/s should consider this report as only a single factor in making their investment decision. Neither NAYAN M. VALA SECURITIES PVT.LTD. or any of its affiliates shall assume any legal liability or responsibility for any incorrect, misleading or altered information contained herein.