Premco Global Ltd: Wrap­ping gains

(BSE Code: 530331) (CMP: Rs.501.65) (FV: Rs.10)

Money Times - - Stock Scan - ByDil­dar Singh Makani

Mum­bai-based Premco Glob­alLtd (PGL) is a lead­ing man­u­fac­turer of Wo­ven and Knit elas­tic and non-elas­tic nar­row fab­rics, tapes and web­bings for use in ap­parel, lin­gerie, sports re­lated, med­i­cal, footwear, lug­gage, fur­nish­ing and au­to­mo­tive in­dus­tries. Its prod­ucts con­form to ISO 9001-2008 spec­i­fi­ca­tions. Founded in 1966, the Premco group has over the years changed the con­cept of tex­tiles, fur­nish­ing and the knitwear in­dus­try. From its vast pre-de­signed prod­uct line to made-to-or­der trim ac­ces­sories, it caters to the en­tire elas­tic in­dus­try.

PGL ser­vices top in­ter­na­tional brands such as GAP, Old Navy, Sara Lee, Fruit of the Loom, Tar­get Stores, Wal-Mart, etc. Its prod­ucts meet cus­tom spe­cific ap­pli­ca­tions for colour, de­sign, di­men­sion, per­for­mance and needs of high de­mand­ing cus­tomers across USA, Europe, Latin Amer­ica, etc. through its ver­ti­cal pro­duc­tion ef­fi­ciency and the lat­est in- tech­no­log­i­cally ad­vanced ma­chin­ery backed by a pro­fes­sional and ex­pe­ri­enced team.

PGL has four state-of-the-art man­u­fac­tur­ing fa­cil­i­ties across Pal­ghar (Ma­ha­rash­tra), And­heri (Mum­bai), Dadra & Na­gar Haveli (UT) and Vapi (Gu­jarat). It uses Ger­man, Ital­ian, In­dian and

Swiss ma­chin­ery for all stages of pro­duc­tion in­clud­ing warp­ing, cov­er­ing and fin­ish­ing. It sources raw ma­te­rial from the best sup­pli­ers in its cat­e­gory in or­der to con­form to in­ter­na­tional stan­dards. It also im­ports its test­ing equip­ment from global lead­ers to en­sure in­ter­na­tional stan­dards of cal­i­bra­tion. Fin­ished prod­ucts are packed and shipped to spe­cific cus­tomer re­quire­ments.

The fol­low­ing con­sid­er­a­tions might help in­vestors take a wise de­ci­sion.

Over­seas Sub­sidiary: PGL set up a sub­sidiary - Premco Global Viet­nam Com­pany Ltd (PGVCL) at an ini­tial in­vest­ment of Rs.563.53 lakh (higher than its own share cap­i­tal). It holds 85% stake in the sub­sidiary. PGVCL has ad­vanced Rs.920.71 lakh to­wards short-term work­ing cap­i­tal re­quire­ments, for which in­ter­est is charged at the pre­vail­ing mar­ket rates. The sub­sidiary was com­mer­cialised dur­ing Q4FY16, af­ter com­plet­ing Phase I and II. Op­er­a­tions have since sta­bilised and the ini­tial teething prob­lems have been over­come. How­ever, the first year

re­flected a small op­er­at­ing loss of ~Rs.1.71 crore as the process of com­mer­cial­i­sa­tion was grad­ual. PGL ex­pects ~70% ca­pac­ity util­i­sa­tion in FY18 and 100% in FY19.

Ex­ports: The man­age­ment ex­pects ex­ports to grow at 18-20% CAGR over the next few years due to the an­tic­i­pated im­prove­ment in do­mes­tic sales and bet­ter pen­e­tra­tion in in­ter­na­tional mar­kets with ap­pro­pri­ate re­struc­tur­ing of prod­uct mix.

Cost Con­trol: PGL is eval­u­at­ing the use of so­lar en­ergy at its Dadra and Vapi plants in or­der to cut down en­ergy costs be­sides avail­ing re­lated tax ben­e­fits. Fur­ther, it is work­ing with sup­pli­ers to con­vert con­ven­tional dyed yarn to dope dyed yard to re­duce raw ma­te­rial cost by up to 5%. It has also in­stalled J/Q machines to weave wider de­signs, which re­sult in higher re­al­i­sa­tions. These machines also help save man­power ex­penses.

Prospects: The In­dian tex­tile & ap­parel mar­ket has grown at ~9% over the last decade as against ~13% of the in­ner­wear in­dus­try. In or­der to in­crease its mar­ket share and cre­ate ad­di­tional ca­pac­ity, PGL has in­vested Rs.430.77 lakh to mod­ernise its plants and ma­chin­ery in In­dia. It is also try­ing to in­crease its cus­tomer base by in­tro­duc­ing new brands in the do­mes­tic and in­ter­na­tional mar­kets. It is also vig­or­ously try­ing to notch busi­ness from known brands such as Rupa, Lux, VIP, etc. The ca­pac­ity of its Viet­nam plant is also be­ing enhanced rapidly to cater to the needs of in­ter­na­tional brands.

PGL feels that with higher dis­pos­able in­comes, the in­ner­wear in­dus­try will ex­pand rapidly in times to come. The chang­ing habits of In­dian con­sumers to use branded in­ner­wear will en­able the Com­pany to cater to the pre­mium seg­ment, which will have a pos­i­tive im­pact on its re­al­i­sa­tions. Its po­ten­tial to ex­port to global brands will also boost re­al­i­sa­tions.

Share­hold­ing: The pro­mot­ers hold 63.95% stake in the Com­pany. Usu­ally, for­eign in­sti­tu­tions (FIs), Mu­tual Funds (MFs) and for­eign in­vestors do not pre­fer to in­vest in com­pa­nies with small eq­uity where the liq­uid­ity is low. But 2.35% stake in PGL is held by MFs, 7.4% by for­eign in­vestors and 1.61% by body cor­po­rate. It is in­ter­est­ing to note that out of the to­tal 11,91,346 shares avail­able in the pub­lic cat­e­gory, 2,16,266 shares are held in the phys­i­cal form. This could be a pos­i­tive sign as cer­tain in­vestors may be con­tem­plat­ing to re­main with the Com­pany for a long time.

If the MF and for­eign hold­ing is ex­cluded, then in real terms only 7,97,908 shares are avail­able as float­ing stock. The only mat­ter of con­cern is that there are around 3,200 share­hold­ers only and the shares are thinly traded.

Fi­nan­cials: With an eq­uity cap­i­tal of Rs.3.3 crore and free re­serves of Rs.54.4 crore, PGL’s share book value works out to Rs.175 as at FY17. The Com­pany is debt-free. It posted an EPS of Rs.25.2 and de­clared 30% div­i­dend for FY17. It has con­sis­tently in­creased its div­i­dend pay-outs. The cur­rent mar­ket price is cum div­i­dend.

It must, how­ever, be noted that the to­tal earn­ings for FY17 was lower than FY16. The man­age­ment clar­i­fied that the fall was pri­mar­ily due to a stronger ru­pee which ap­pre­ci­ated by about 10% against the US Dol­lar in Q4FY17, re­sult­ing in lower re­al­i­sa­tion of ex­port or­ders. The Com­pany also lost on For­eign Ex­change For­ward Pre­mium. Its Forex Hedg­ing pol­icy has since been re­worked and the man­age­ment ex­pects much bet­ter per­for­mance in the next few quar­ters. A fall in prof­its can also be at­trib­uted to the di­ver­sion of funds for ex­pan­sion. The man­age­ment is very con­fi­dent of higher sales and prof­itabil­ity in FY18.

Over­com­ing liq­uid­ity is­sues: PGL ex­hibits a strong bal­ance sheet. Its fu­ture busi­ness prospects are also good with plans to be­come an in­ter­na­tional brand. The only point of con­cern is that its shares are thinly traded on the stock ex­change. How­ever, be­ing dom­i­nantly at a point of in­flec­tion, cir­cum­stances may prompt the man­age­ment to ei­ther is­sue bonus shares or split its share in a smaller de­nom­i­na­tion to is­sue ad­di­tional shares to its ex­ist­ing in­vestors in an at­tempt to in­crease liq­uid­ity.

Con­clu­sion: The PGL stock’s 52-week high/low is Rs.695/390. There is no am­bi­gu­ity that the stock will soon breach its pre­vi­ous high. In­vestors who have the pa­tience to hold the stock for about two years are likely to hit the jack­pot. Buy this gold­mine be­fore it is too late.

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