Stock Review : Skumars Nationwide

Skumars : Demerger to Unlock Value


Based on popular demand from the readers of the blog, I am putting up a review of Skumars Nationwide. This stock has been featured couple of times on this blog and of late, I have received enquiries from the readers on the non-performance of the company in terms of stock price movement.Let's find out answers to some of the questions.


Basic Information
Company : Skumars Nationwide
Sector : Textile
CMP : RS. 81.10
52 week High /Low : 87.40 / 35

How are the latest results of the company ?

The company has recently annouced the fourth quarter and annual results for the year ended 31st March,2007. Here are the findings :

Quarterly Results

Net sales of the company increased 49.93% to Rs 3,716.6 million for the quarter ended March 2007 from Rs 2,478.9 million for the corresponding quarter last year.


  • Net profit declined 38.40% for the quarter ended Mar. 31, 2007. Net profit stood at Rs 218.3 million for the quarter ended Mar. 31, 2007 as compared with Rs 354.4 million for the quarter ended Mar. 31, 2006

  • The EPS for the quarter ended March 2007 increased 36.05% to Rs 2 from Rs 1.47 for the same period last year.
Why a reduction in Net profit ?


  • The above reduction in Net profit is due to an extraordinary item of Rs.160.5 Million on account of providing for the Transfer of assets on demerger.
  • If we see the company's performance QoQ before extraordinary itmes, the Net profit has grown from 227.6 million in Q4 Fy06 to 378.8 million in Q4 FY07. This translates into a increase of 66.4% in Q4 FY07 over Q4 Fy06.
Annual Results


  • Net Sales stood at Rs 12516.8 million for year ending 31st March,2007 as compared to 8932.1 million for FY 2006. This translates into a topline growth of 40% over previous year.

  • Net profit has incerased from Rs.999.4 million to Rs. 1027.8 million in FY07 resulting in a growth of 2.8 %. However if we exclude the Extraordinary items, the company has deleiverd a Net profit growth of 138 % over FY06

Other Highlights


  • FY07 Basic EPS stood at Rs.7.12 per share while the Diluted EPS stood at Rs. 5.36 per share
  • Promoter holding as of 31st March 2007 stood at 42.27%
  • FII holding in the stock as of 31st March,2007 stood at 36.29 %
  • The stock has been added to the futures and option segment with effect from 14th May,2007.
What are the positives for the company ?


  • The company is the only textile major that operates in all the products segments


  • Company products range is designed to cater to all socio-economic segmnets of the economy and hence has an edge over its competitors


  • The company is Market leader in Uniforms, #2 in worsted suiting and is the largest institutional supplier of textiles.


  • The company's boasts of strong brands like Ried and Taylor, Skumars, Tamarind and carmichael house.


  • Reid & tailor is a leader in worsted fabrics and Ready to wear while Skumars is leader in Blended fabrics, work wears and Uniforms. Carmichael house is a pioneer brand in Bed, bath and Table and Kitchen linen.


  • The company has a strong distributional network comprising of 3000 dealers and 30000 retail outlets.
Demerger of Retail Business

Skumars business strategy for the coming years is to develop its retail wing and promote it as a major driver of its growth. The company's board has recently approved the demerger of its subsidiary Brand House Retail Ltd. (See Naveen Bhargava's story on Skumar's retail foray in his blog-Retail in India)

As per the Deerger Scheme the shareholders of Slumars Nationwide would get 1 share of Brandhouse Retail for every 5 shares they hold in Skumars Nationwide.

The company plans to raise the number of its exclusive brand stores countrywide from 90 at present to 1,000 in next three years. It is also planning up to tie with leading global brands to sell their products at its retail outlets.

You can read more on the Textile related stuff and news on SKumars on the fibre2fabric website.

If one believes in the consuption boom story in India, the retail sector has as tremendous advantage in exporing the vast opportunity that lies in tapping the Indian markets and growing purchasing power of the Indians. Skumar's initiative in demergering its retail division is a step in right direction and would help unlock the value for the shareholders of Skumars.

Private Equity Investment in Skumar's

Recently AMD capital, a Hong Kong-based private equity firm has announced its plan to invest $107 million in Skumar's. ADM plans to invest $82 million to acquire a 10 percent stake in S Kumars Nationwide and another $25 mn will be invested in Brandhouse Retail for another 10 percent stake in the company. The investment will be thorugh issue of convertible warrants.

Future growth plans of Skumar


  • Gross Revenues of INR 900 crores (USD 200 Mn.) by 2010-11(EBIDT 13.14%)


  • 20 Brands (across categories) managed by BHRL by 2010-11


  • 552 Exclusive Brand Outlets for 20 brands by 2010-11


  • Around I million sq. ft, of retail space managed by Brandhouse by
    2010-11
(Source : Business Presentation Skumars Sep'06)






Where is the stock price headed ?

Based on the current price of Rs. 81 the stock trades at a P/E of 11.38 which is quite reasonable. The stock is currently trading in a range of Rs. 70-80. The 50 Days moving average for the stock is at Rs. 76. The stock has been able to hold above this average for some time now which is a good sign. It has resistance at Rs. 74 and a major resistance at Rs. 68. For upward journey the stock is facing resistance at Rs. 82 and once it breaks the 82 levels convincingly and holds there for few sessions, it would head for a target of Rs. 90. Fundamentally, the company is doing well and the stock is reasonably priced at current levels. Investors are advised to wait for the demerger to happen to get the benefits of value unloacking for its retail venture.

Additional Information on Skumars

Company Website

Skumars Product Range

10 comments:

Anonymous said...

Hi Rajesh,
Thanks for the excellent write up.

Rgds
Sunil

Anonymous said...

dear Raj,
thanks for the article. I am holding 500 shares which i bought at Rs. 65 after reading your article. I hope the stock touches 100 mark soon !

Thanks
Shobhit

manish said...

Hi Rajesh...what's your outlook on Nitin fire...the stock has fired up like anything....would it be a good idea to buy at current levels ?

Anonymous said...

gururji mayne 100 share kharide hay nitin fire IPO ke 410 ki rate se....bechu ya hold rakhu

please aapka margdarshan chaiye

aapka anuyayi
nitin maheshwari
mumbai

Anonymous said...

Hi rajesh, even in this sluggish market, Skumar is trading relatively strongly with good delivey volumes....looks like 90 levels are very near...what do you think ?

Manish

Anonymous said...

Hi Rajesh...I am holding 100 shares of skumar which I bought for Rs. 65. Can I accumulate more at current levels ?

Anonymous said...

hi rajesh
the new look of your blog is appealing. You are really working hard on this. congrats.

Hemant

mukul said...

Hi rajesh
thanks a lot for this wonderful idea. I had bought 1000 shares of Skumars on your recommnedation @ 76. I am sitting on a cool profit of 28000 bucks. What do I do now...book profits or stay invested ? I am getting impatient to book profits but the stock is climbing day by day...please advie and thanks once again

Mukul

Kunal Bhasin said...

i will buy some skumar now...

PENNY STOCKS said...

Some excellent stock picks.