Stock Review: Mandhana Industries

 

Mandhana Industries' focus on high-margin garment business will stitch up more revenues. Being-Human project is a big prop-up

 

   MANDHANA Industries is a good investment opportunity for investors with a 1-year horizon. Rising realisations from the garment business, minimum exposure to the US, a long yarn inventory, and the low debt-to-equity ratio, post-expansion, make the stock attractive.

BUSINESS:

Mandhana is a Mumbaibased vertically integrated textile company. It is engaged in yarn dyeing, weaving, processing, and fabric and garment manufacturing. In the domestic market, the company supplies fabric to Aditya Birla Nuvo, Pantaloon Retail, ITC, and Siyaram Silk Mills. In the international market, the company supplies fabric to brands such as Tommy Hilfiger, Charles Vogele, RIP CURL, All Saints, Simint, Colin's, Pepe Jeans, and LAFUMA. Around 85% of the company's revenues come from fabric business while the rest is from garment making.

GROWTH DRIVERS:

To offset the rise in raw material costs, Mandhana has hiked fabric prices 61% to 164 per metre in the quarter ended December. The company maintains nearly 4-month yarn inventory, which shields it to some extent from the rise in input costs. The company's increased focus on high-margin garment manufacturing business will boost revenue. It sees fabric capacity doubling to 36 million metres by the end of March quarter, which would double its garment manufacturing capacity to 8 million pieces in the next fiscal.

   Over 90% of the company's garment manufacturing revenue comes from Europe. Even during the slowdown when most textile companies incurred losses, Mandhana was one of the few that continued to make profits.

   Recently, the company had a tie-up with Being-Human, a foundation by actor Salman Khan, in which it will exclusively market and distribute Being-Human clothing worldwide for the next 9 years. It plans to open the first Being-Human store in Mumbai by August and set up more stores across major cities. The planned expansion would entail an investment of around 70 crore for which the company has already availed of a bank loan.

FINANCIALS:

In the December quarter, Mandhana reported net profit of 19.89 crore, up 87% year-on-year. Revenues were at 215 crore, up 14%. Rise in yarn prices had a marginal impact on its EBITDA margin, which fell by a mere
260 basis points to 17.5%.

VALUATION:

On the valuation front, the company is currently trading at priceto-earnings multiple of 12 times. This is a bit expensive in comparison with its peers. However, low debt-to-equity, good dividend paying record, and robust growth prospects make the scrip a good investment proposition.