Tuesday, April 11, 2006

Bloddy coincidence

I maintain a fairly extensive stock tracker which gives me a decent idea of NCAV, P/E ratio, fwd PE, debt recap numbers etc. Two stocks - Aarvee Denim and Exports Ltd. and Nahar Exports - are listed sequentially there. Surprisingly ...
1. Both stocks have an m-cap of 290 crs
2. Both stocks give a dividend of 1.50 on a 10 rupee share
3. Both stocks have similar debt recap value of 105 crs and consequently, the same ratio of debtrecap/m-cap
4. Both stocks have the same fwdP/E ratio of 7.90

I had put Nahar Exports on the BUY list a month back when it was at 70.00 rupees (the stock has jumped up to 89.00; I bought this stock yesterday at 82 .. so I made 9% in a day ... ha ). Im putting a buy on Aarvee Denim and Exports Ltd. aswell. The stock is available at 132 rupees (11-Apr), is largely profitable at 37 crs (expected this yr), growing sales and profits and good management.

7 Comments:

Blogger Ravi Purohit said...

Hi Shankar,

A few words of caution there. Denim producers reported dismal numbers in the Dec'05 quarter, owing to poor realisations, caused by a large supply glut in the domestic as well as intl markets. This situation is currently on and is expected to remain so in the ensuing quarters. U will see a lot of denim producers reporting poor numbers in the Mar'06 quarter and maybe a few more quarters ahead. Aarvee was an exception in the Dec qtr but will it remain so ? I doubt.

Check the nos for KG Denim, Ashima, Arvind Mills, etc.

--
Regards.

9:39 PM  
Blogger Ravi Purohit said...

This comment has been removed by a blog administrator.

9:39 PM  
Blogger Shankar said...

Good pt, Ravi. I explored the same post ur comments.
1. KG Denims sales were down in Dec-05. Strangely profits were up??? .. fwdPE is 30.9
2. Ashima seems a totally sick unit .. back to back negative profits, twice over.
3. Arvind Mills - pt taken. Sales are down for Dec-05 and so are profits. FwdPE would be 16.90 of this stock.

I picked up some news from the web ...
[1]http://www.emergingtextiles.com/?q=art&s=060222-trad&r=free&n=1
(it says ... Aarvee, one of Raymond's main Indian competitors, also said the domestic market was thriving)

[2] http://www.bharattextile.com/newsitems/1999256
(.. denim prices have reduced, so manuf are reducing output to match that)

I think pt 2 is very relevant ... is that the reason why the sales are down for most other manufacturers.

Warm Rgds
Shankar

PS: Ironically, pt 2 was said by the CMD of Aarvee .. the only company in our subset whose sales have increased.

11:37 PM  
Blogger Shankar said...

Ok. got one. http://www.bharattextile.com/newsitems/1999295

It says -
1. Denim producers are now confronted with excess supplies after capacities were largely expanded in the past year

2. There has been an unprecedented increase in denim production within the country due to a fall in cotton prices and availability of low-priced domestic technology. This time round the depression in the denim sector is expected to be deeper than the last one, in 1995-1996.


3. The industry is hoping that international demand for denim should start to pick up within the next 2-3 months, thus easing pressure on the domestic market. The situation on the export market has however worsened as a result of surging exports from China.

4. There are enquiries from international buyers for denim garments, who are looking for factories producing 20,000 pieces per day. Most denim factories cannot manufacture even 10 per cent of this level.

5. Aarvee Denim is planning to scale up its denim RMG production from 2,000 to 10,000 pieces a day within the next six months, and further to 20,000 pieces a day soon after that. Other important denim manufactures such as Arvind Mills or KG Denim could also scale up denim garment production, and therefore achieve economies of scale.

Ravi - now I am confused.

Warm Rgds
Shankar

11:43 PM  
Blogger Ravi Purohit said...

Shankar,

The problem is everyone is building denim capacities - Raj. Spg & Weaving Mills, Nahar Industrial Enterprises, Nandan Exim, Suryalakshmi Cotton, and the ones that we already have in our subset. Bottomline - if all these guys do set up denim capacities who will buy, given that there is already excess supply. I think what we need to concentrate on is to find that which of these companies would sell denim based garments and not just the denim fabric. Whoever does garments is likely to fare better than the rest. Garments earn the highest margins in the entire textile chain. And if denim fabric and raw cotton prices stay lower, than companies that make denim garments can make a killing. So basically we should try and find out which of these is keen on making garments and not just the fabric - Aarvee is doing the smart thing if what you say is true, ie. increase production of RMG. I think that makes a lot of sense. The only issue is how much fabric will a 10,000 pieces a day garment capacity consume ?

--
Ravi.

7:41 AM  
Blogger Shankar said...

Relevant pt. The industry PE is at 18. Aarvee is at less than 8. And is set to emerge one of the biggest denim players in the country ... does it make sense to exmaine a stake here. A good business.

Warm Rgds, Shankar

8:14 PM  
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10:24 AM  

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