Company Update Textiles India Research NVS Wealth Managers Mandhana Industries Ltd. CMP: 270 High Risk BUY Target: Rs 370 Nifty 8,295 Sensex 27,470 Nifty PE 22.6 Sensex PE 22.1 Mandhana Industries Ltd (Mandhana), founded by Mr. Purshottam Mandhana, Chairman and under young and dynamic leadership of Mr. Manish Mandhana, has emerged as a multi divisional Textile company in India encompassing the manufacturing of specialty fabrics, garments, branded products under the famous brand Being Human, in strategic tie up with leading bollywood star Salman Khan. Stock Data Sector Textiles BSE Code 533204 NSE Code Mandhana FV 10.0 Market Cap (INR cr) 895 Market Cap (US$ mn) 137 Equity Share Cap.(INR cr) 33.1 Stock Performance (%) 52-week high/low Rs. 326/241 1M 6M 12M Absolute (%) 5.0-3.5 11.6 Shareholding Pattern (%) 5.2 0.7 22.5 71.7 Promoter FII DII Others` Sensex & Stock Movements 120 100 80 60 BSE Sensex 23 rd October 2015 Mandhana Mandhana signed an exclusive 18 years deal with Salman Khan Foundation for global license to design, manufacture, retail and distribute clothing under the flagship brand Being Human. Infact the topline under the brand has grown at a staggering CAGR of 96% in last 3 years from Rs. 45 Crs to Rs. 172 Crs and promising to be a big blockbuster for the Co. With a view to unlock the value of the Retail and Branded Business, comprising of Readymade woven garments, including men shirts, ladies tops, dresses, skirts, kids wear and sportswear, (including Being Human ), the company is demerging the same with a topline of Rs. 172 Crs into separate company - Mandhana Retail Ventures Ltd. Mandhana has four state-of-the-art Fabric manufacturing facilities and seven garment manufacturing units across India, with Global presence for exports to 25 countries in Europe, Americas and Middle East. Mandhana posted stable performance for Q1FY16 with revenues of Rs. 351 Crs. (Rs. 316 Crs), EBITDA of Rs. 62 Crs (Rs. 55 Crs), and PAT of Rs. 15 Crs (Rs. 16Crs) For full year FY15 the company had revenues of Rs. 1.685 Crs, EBITDA of Rs. 271Crs and PAT of Rs. 83 Crs on a equity capital of Rs. 33 Crs a decent EPS of Rs. 25. Mandhana, at a CMP of Rs. 270 is trading at a modest PE of 11x and with retail story ready to bloom with a strong growth in topline and the margins, is offering attractive investment opportunity with a price target of Rs. 370 in medium to long term perspective. The branded and retail business should add a strong value for the investors and shareholders. Financials Particulars (INR Crs) Q1FY16 Q1FY15 Y-o-Y (%) FY15 FY14 Total Revenue 351 316 11% 1,685 1,518 EBITDA 62 55 12% 271 247 Net Profit 15 16-6% 83 59 EBITDA % 18 17 16 16 Net Profit % 4 5 5 4 EPS 4.56 4.85 25.08 17.89 Source: BSE Published Results
Demerger of Retail Business Value Unlocking Exercise To unlock the value of the Company s Retail Operation segment, the Company decided to demerge its retail business of brand Being Human ( the Retail Business ) into a separate company viz. Mandhana Retail Ventures Limited ( MRVL ), to be listed post demerger. Shareholders of Mandhana shall receive 2 equity shares of MRVL for every 3 equity shares held in the Company. Equity Share Capital of MRVL will be Rs. 22 Crs and Share Holding Pattern will remain the same. Being Human The Promising Brand Value Mandhana in October 2012 expanded its retail segment with flagship brand Being Human. The company entered into an exclusive 18 years license arrangement with Salman Khan Foundation for distributing, designing and marketing of Being Human clothing line. The company pays a royalty on sale of Being Human merchandise to salman khan foundation. Mandhana with large scale of economies is aggressively expanding the reach as well as product range for retail business. It has plans to launch kids wear collection for Being Human. It has already added women s wear to its initially launched men s wear. Being connected with Salman Khan Being Human brand has recorded staggering growth in last 2 years with topline increasing at a CAGR of 96% to Rs. 172 Crs in FY15 against Rs.131 Crs in FY13 and Rs 45 Crs in FY12 contributing 52% of the garment revenue of Mandhana Industries. Being able to sell at premium pricing it commands and EBIDTA margin of 27%. The Company enjoys a significant presence in the Middle East and Europe, comprising 388 selling points. The company has plans to roll out a total of 750 selling point over next 2 years.it is now targeting geographies like the Far East, the US and Africa, geographical pockets with a significant Indian population. It also has a good online Distribution network tie ups with all major Fashion Online companies. The overseas market are tapped through strategic alliance with Landmark group. Fabric Segment Mandhana has four state-of-the-art manufacturing facilities in MIDC (Tarapur) engaged in yarn dyeing (4.3 mn kg), weaving (39 mn mtrs) and fabric processing (72.60 mn mtrs) contributing 80% of the total revenue. The revenue from fabric has witnessed a 5 year CAGR of 14.34% increasing from Rs.692 Crs to Rs.1354 Crs The Company manufactures fabric for the domestic market as well as exports it to leading global customers. Integrated operations, innovative designs, superior quality and timely delivery have helped the Company earn the respect of leading brands (India and overseas). The Company s domestic clientele comprises Van Heusen, Pantaloons, Pepe Jeans, Shoppers Stop, Raymonds, Spykar, Levis, among others and international business partners include Hilfiger Denim, Marks & Spencer, Tommy Hilfiger, Marc-o-Polo,Levi s, Gerry Webber etc.
Mandhana - Historical Financial Performance Particulars (INR Crs) FY10 FY11 FY12 FY13 FY14 FY15 Total Income 610 843 981 1,359 1,515 1,692 Total Expense 498 689 793 1,162 1,271 1,410 EBITDA 112 155 188 197 244 283 Interest 28 36 61 74 103 112 PBDT 84 119 127 122 140 170 Depreciation 17 19 23 26 29 40 PBT 67 99 103 96 111 130 Tax 23 33 30 31 52 47 PAT 43 67 73 65 59 83 Equity Capital 25 33 33 33 33 33 Reserves 169 319 384 439 490 564 EPS 17 20 22 20 18 25 EBIDTA Margin 18% 18% 19% 14% 16% 17% PAT Margin 7% 8% 7% 5% 4% 5% Debt 414 557 702 858 934 891 Debt / Equity 2.1 1.6 1.7 1.8 1.8 1.5 Return on Networth (%) 22.4 19.0 17.5 13.8 11.3 13.9 Book value (Adjusted) (Rs.) 78 106 126 143 158 180 Dividend % 17.5 20.0 20.0 20.0 20.0 20.0 Critical Analysis Mandhana has performed stable in the last 5 years with Total Income and EBITDA increasing at a CAGR of 23% and 20% respectively on the back of higher economies of scale and focus on branded products segment. Total income has increased from Rs. 610 Crs in FY10 to Rs. 1,692 Crs in FY15. However, the company has high debt therefore its PAT margins have remained in single digits and PAT grew at a CAGR of 14% in past 5 years. The business of the company is highly influenced by the trends and taste of fashion which may change with new designs in the markets. Also there are high indirect costs like marketing and branding of products. Mandhana is gradually shifting its focus to ready-to-wear garments under its flagship brand Being Human should bring down its working capital cycle and thus the interest cost. Mandhana is confident that its volume-led and value-driven strategy will deliver even better returns.
Peer Comparision Financial Performance for the year ended 31 st March 2015 Particulars (INR Crs.) Mandhana Industries Kitex Garments KKCL* Indian Terrain Zodiac Clothing Page Industries 1. Total Income 1,692 525 416 291 400 1,552 2. Total Expense 1,410 340 312 257 374 1,224 3. EBITDA 283 184 104 34 26 328 4. Interest 112 21 3 9 3 17 5. EBDT 170 163 102 26 23 311 6. Depreciation 40 21 4 3 10 18 7. PBT 130 142 98 23 13 293 8. TAX 47 43 32 5 4 97 9. PAT 83 99 66 18 9 196 10. Equity Capital 33 4.75 12.33 7.19 19.51 11.15 11. Reserves 564 259 307 119 248 376 12. Face Value 10 1 10 10 10 10 13. EPS 25.1 20.74 53.73 25.01 4.62 175.75 14. CMP 270 840 2,122 637 280 13,959 15. MCAP 894 3,990 2,616 458 546 15,570 16. PE (x) (14/13) 10.8 40.5 39.5 25.5 60.6 79.4 17. MCAP/ Total Income (15/1) 0.5 7.6 6.3 1.6 1.4 10 18. MCAP/EBITDA (15/3) 3.2 22 25 13 21 48 19. EBIDTA Margin (%) (3/1) 17% 35% 25% 12% 6% 21% 20. PAT Margin (%) (9/1) 5% 19% 16% 6% 2% 13% 21. Debt 765 141 11 51 57 134 22. Debt / Equity 1.3 0.53 0.04 0.4 0.21 0.35 * Kewal Kiran Clothing Ltd. Critical Analysis Mandhana trades at PE of little over 10x of FY15 EPS, with peers trading at an average of 49x. Some of the peers like Page Industries and Zodiac clothing are trading at 79x and 61x. MCAP/Total Income of Mandhana is only 0.5x as compared to its peers, trading at an average of 5.4x. Peers like Page Industries and kitex garments are trading at 10x and 7.6x respectively. MCAP/EBITDA of Mandhana is only 3.2x as compared to its peers, trading at an average of 25.8x. Peers like Page Industries and KKCL are trading at 48x and 25x respectively. Mandhana which is now ready for branded garments under the now famous brand Being Human and expanding the portfolio from readymade woven garments, including men shirts, bottoms, ladies tops, dresses, skirts to kids wear which will open up the huge addressable market and should enable to aggressively expand its topline, bottomline and margins.
Top Shareholders Sr. No Name of the Shareholder No. of Shares held % 1 Polus Global Fund 685,000 2.07 2 Religare Finvest Ltd 680,907 2.06 3 Life Insurance Corporation of India Ltd. 658,331 1.99 4 Axis Bank Limited 602,800 1.82 5 Bajaj Allianz Life Insurance Co. Ltd. 350,000 1.06 Total 2,977,038 9.00 Promoters Confidence Mandhana s promoters have been gradually increasing their stake in the company and have added 13.5 lakh shares in their holdings.the promoter group has increased its stake from 67.03 % in June 2013 to 71.12% in June 2015. This reflects the promoter group s confidence in the company. Recommendation We recommend to accumulate Mandhana at a CMP of Rs. 270 which is converting from its normal textile business to branded business and this should significantly improve topline, bottomline, margins and valuation of the company in the times to come. Investors are advised to buy with medium to long term perspective of 12-18 months.
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