Stock Review: S.KUMAR’S N’WIDE

Fabrics and garment manufacturer S Kumars Nationwide is in the process of listing its subsidiary Reid & Taylor on the bourses. This will not only help to unlock brand value, but also improve brand recall. The company is expanding fabrics capacity and also the number of retail outlets. This coupled with low debt should boost earnings in the coming quarters.

BUSINESS

The company derives 75% of its revenues from fabrics division and the remaining by selling garments. The company's brands in India include its flagship S Kumars, Belmonte, Reid & Taylor, Carmichael House and World Player. Globally, the company owns 37 brands in Italy, the UK and the US. DKNY, Legguino and Coppley are the more well-known among them. On the whole it caters consumers from the economy to the premium segment of textile value chain

GROWTH DRIVERS

The company plans to raise 1,000 crore through an IPO of its subsidiary Reid & Taylor. It holds 75% stake in the subsidiary while the Government of Singapore Investment Corporation (GIC), a sovereign fund, holds the remaining 25%. The money is likely to be used to fund the company expansion plans.
It plans to increase its fabrics capacity to 10.2 million metres from 8.4 million metres now. In the ready-to-wear segment, the company has launched casual brands Kruger (premium segment) and World Player (economy segment). S Kumars also plans to launch 160 exclusive brand outlets to increase its reach.

The company is a leader in the uniforms segment with a market share of over 30%, which has helped in lifting operating margins to 22.5% from 14.8% in the last five fiscal years. Going forward, increasing focus on luxury textile, which yield high EBIDTA margin (at present 38%), would be prudent and lucrative for the company.

FINANCIALS

The company's net sales have grown at a CAGR of 43.3% over the last four years. Operating profit grew at a CAGR of 43.4%. The company's net profit grew by 41% to 397 crore in FY11. Net sales grew by around 35% to 5,180 crore. The company has a debt-equity ratio of 1. This is better than its peers such as Alok Industries and Arvind Ltd, which have debt to equity ratio of around 2 each.

VALUATION & CONCERNS

At the current market price of 67, the company is trading at a P/E of 11. This is at a premium given that Alok Industries trades at a P/E of five. Considering these factors, investors should look to book profits post the IPO of Reid & Taylor.