Stock Review: Mandhana Industries

 

Vertically-integrated textile player Mandhana Industries is set to benefit from the continued focus on garments in the present fiscal. Given the uncertainty in movement in prices of cotton and yarn, the company's focus on the garment segment of the textile value chain is prudent and lucrative. This is mainly because the garment business is less capital-intensive and high on margin.

At present, Mandhana derives around 15% of its revenues from this business. In the coming quarters, the company plans to increase its share of garmenting in total revenues to 25%. For this, the company has already streamlined its expansion of fabric capacity at its weaving facility at Tarapur near Mumbai. The company's fabric capacity will double to 36 million meters in the coming quarters. The expansion will also more than double the Mandhana's garment manufacturing capacity to 8 million pieces in the next financial year. A major factor that will increase its revenues from garments revenues is its ability to pass on the increase in input costs (yarn prices). The company has increased its per piece price to . 422 at present from . 348 per piece in the December quarter last year. This will enhance its revenues from garments in the coming quarters. Garmenting revenues will also get boosted due to its tie up with Being-Human, a foundation by actor Salman Khan. The company will exclusively market and distribute 'Being Human' line worldwide for the next nine years. It plans to open the first store of 'Being Human' in Mumbai by this August and increase the store count to 18 by the end of this calendar year across major cities in India. The management expects revenues of . 150 crore in FY13 from the 'Being Human' brand.

Besides this, the company has minimal dependence on the US market for exports. This shields it from the risk of over-dependence on a single market. More than 90% of the company's garment revenues come from the European markets. The company expects to close this fiscal with around an around 35% jump in its net profit and 25% increase in its net sales. For FY10, the company's net profit grew by 53% to . 66 crore on a year-on-year basis. Also, its net revenues increased by 34% to . 838 crore on a year-on-year basis. In the past one year, the company's stock has beaten the ET Textile Index by 2%, giving returns of 26%.