Stock Pick from Apparels and Accessories Sector

HERE IS WHY

• ·          A strong demand from exports market to drive growth
• ·         Not a single share of the company is pledged indicating the company’s financial strength
• ·         Capacity expansion at lower cost is a major growth driver

There are few companies that hold great potential but are usually ignored by the investors’ fraternity. The reason for this is quite simple: there is lack of awareness as not many analysts track those companies. However, we at Dalal Street Investment Journal have been finding such hidden gems for our readers. Bhandari Hosiery Exports (BHE) is one such scrip gem that has great potential to create wealth for its shareholders. BHE is engaged in the manufacture and export of high fashion knitted garments.

Apart from the strong products portfolio, the company also has a strong export market in 18 countries, including developed nations such as USA, Canada, UK and European markets. Currently, 40 per cent of its revenues come from exports. With increased demand, BHE is also going for capacity expansion. The company has not pledged a single share, which clearly indicates a conservative but good management bandwidth of the company. With growth drivers in place, BHE is a good investment bet with a horizon of 12-18 months.

BHE is planning to widen markets both at domestic and international levels and hence it is increasing its capacities with a planned capex of `50 crore in the next two years. This includes commissioning of the fabric dyeing facility in October 2014 and commissioning of yarn dyeing facility in May 2015. It further includes commissioning of the sewing thread facility in May 2016. The capacity expansion will be funded through a mix of debt and internal accruals. For the first phase expansion of fabric dyeing, the company has been sanctioned `18 crore from SBI. As regards the land, company’s unit is spread in an area of 9-10 acres with constructed area approximating 25 per cent of the total area. Current valuation is close to `8 crore per acre.

The company plans to expand and modernize its existing dyeing capacities. It proposes to increase the dyeing capacity from 3 TPD to 9 TPD by inducting 6 tons of fabric dyeing machinery along with supporting equipment for knitted fabrics. BHE will use this capacity for in-house consumption and sale in open market, while the balance will be utilized for job work. It intends to utilize existing infrastructure for proposed expansion project.

Company is having Gross block of `30 crore with long term debt of Rs 2.7 crore and sales of more than Rs 111 crore in FY14. Earnings per share (EPS) of the company for FY14 was at Rs 1.35. We expect that the company’s vertical production facility will augur well looking at the demand scenario from both domestic as well as international markets. Besides, the company’s capacity expansion will start bearing fruits from the current fiscal year. At the current market price of `52, the stock P/E ratio is at 10x FY15E and 6x FY16E, respectively. We recommend a buy in this particular scrip with a target price of `72 with an investment perspective of one year.