OctoberQuest Conference - PPFAS · Valuation of Raymond Apparel Division 27 OctoberQuest: Naresh...
Transcript of OctoberQuest Conference - PPFAS · Valuation of Raymond Apparel Division 27 OctoberQuest: Naresh...
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OctoberQuest Conference
Naresh Kumar Katariya (@KhivrajNaresh) 06th October 2016
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+ Equivalent of “Free Hit” in Investing? 2
OctoberQuest: Naresh Kumar Katariya
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+ Investment Strategy: G-O-V Model 3
OctoberQuest: Naresh Kumar Katariya
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+ Investment Strategy: G-O-V Model 4
Deep Insight of Industry/Company, to enable: • Right Position Sizing • Realizing the full potential
OctoberQuest: Naresh Kumar Katariya
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+ Tell Me Where I am Going to Die, So I Won’t Go There – Charlie Munger
5
Key pitfalls which I watch out for and avoid:
n Prone to Disruption – New Technologies/Business models
n High Receivable Days – Financier in the garb of Manufacturing?
n Low Dividend Payout Ratio – One-sided relationship?
n High Valuations – Investors’ propensity to overpay
OctoberQuest: Naresh Kumar Katariya
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+ Investment Idea 6
n The investment idea is more to explain my investment strategy, rather than a stock recommendation
OctoberQuest: Naresh Kumar Katariya
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+ Sleeping Giant Awakens 7
OctoberQuest: Naresh Kumar Katariya
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+ 8
OctoberQuest: Naresh Kumar Katariya
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+Raymond: Market’s Concerns
n Management Quality
n Growth concerns
n Valuations
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OctoberQuest: Naresh Kumar Katariya
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+ Raymond: Addressing Market’s Concerns
n Management Quality
n Growth concerns
n Valuations
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OctoberQuest: Naresh Kumar Katariya
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+ New Management Team 11
OctoberQuest: Naresh Kumar Katariya
Promoter role reduced significantly – Professionals in charge now
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+ Aggressive Insider Buying over last 6 Quarters 12
40.20 40.20 40.20
40.61 40.81
41.52
42.24 42.40
42.95
39.50
40.00
40.50
41.00
41.50
42.00
42.50
43.00
43.50
Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16
Raymond Promoter Shareholding %
OctoberQuest: Naresh Kumar Katariya
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+
n Management Quality
n Growth concerns
n Valuations
13
OctoberQuest: Naresh Kumar Katariya
Raymond: Addressing Market’s Concerns
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+ Raymond Business Segments
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OctoberQuest: Naresh Kumar Katariya
Extremely profitable Branded Textiles with fast growing Apparel
18% EBIDTA Margins
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+ New Initiatives: Made-to-Measure Factory-finish, but Custom-made
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OctoberQuest: Naresh Kumar Katariya
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+ New Initiatives 16
OctoberQuest: Naresh Kumar Katariya
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+ Store Renovations is pushing growth momentum 17
OctoberQuest: Naresh Kumar Katariya
From FY16 Q4 Concall
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+ Growth Potential of Branded Apparel in India 18
OctoberQuest: Naresh Kumar Katariya
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+ Growth Push in Apparel 19
OctoberQuest: Naresh Kumar Katariya
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+Growth Push in Apparel
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OctoberQuest: Naresh Kumar Katariya
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+ Google Search Volume for various “Raymond” terms Usually Peaks in Oct/Nov, but much higher this time already
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OctoberQuest: Naresh Kumar Katariya
Google Search Volume at September
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+ Real-Estate Unlocking 22
OctoberQuest: Naresh Kumar Katariya
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+ Real-Estate Unlocking: Slide in June 2016 Presentation 23
OctoberQuest: Naresh Kumar Katariya
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+ 24
Ideas 20-20: Naresh Kumar Katariya
Real-Estate Unlocking
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+ 25
Ideas 20-20: Naresh Kumar Katariya
Real-Estate: GSK Land behind Raymond Thane
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+
n Management Quality
n Growth concerns
n Valuations
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OctoberQuest: Naresh Kumar Katariya
Raymond: Addressing Market’s Concerns
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+ Valuation of Raymond Apparel Division 27
OctoberQuest: Naresh Kumar Katariya
829.51 897.11
1,010.63
1,193.61
1,408.46
500.00
600.00
700.00
800.00
900.00
1,000.00
1,100.00
1,200.00
1,300.00
1,400.00
1,500.00
FY13 FY14 FY15 FY16 FY17E
Raymond Apparel Sales (Cr.)
n ABFRL trades around 1.98X EV:Sales. Indian Terrain is at 1.83X
n Raymond’s Apparel profitability less than peers. Hence, 1X Sales could be reasonable valuation.
n That would give a EV of around 1200 Cr.
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+ Potential for Margin Improvement in Apparel
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OctoberQuest: Naresh Kumar Katariya
From FY17Q1 Concall
Apparel growth is accelerating, but currently unprofitable. Expected to achieve profitability in coming couple of years
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+Valuation Summary: Raymond
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OctoberQuest: Naresh Kumar Katariya
Current Valua+ons (per share) FY20E Valua+ons (per share) Tex+les 360.00 15x FY17E EPS of 24 Tex+les +
Apparel 1,170.00 15 4mes FY20E EPS of 78 Apparel 196.72 1 4mes FY16 sales Realty 98.36 600 Cr, 1/4th Land Value Realty 163.93 1000 Cr, 40% of Land Value Total 655.08 Total 1,333.93
FY16 FY20E Segment Sales EBIT Sales EBIT Remarks Tex4les 3,573.00 497.88 5,043.58 702.80 9% CAGR in Sales & EBIT
Apparel 1,194.00 -‐28.77 2,088.31 104.42 15% CAGR, 5% EBIT Margins Other Income 80.00 Total EBIT 887.21 Interest 200.00 Tax 206.16 PAT 481.05
EPS 20.7 EPS 78.86
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+Tailwinds for Company
n Consumption push from Monsoon, Pay Commission, OROP
n Ongoing growth in Branded Textiles
n Growth of Apparel, and move to Profitability
n Land Monetization / Development
n Possible hive-off or sale of Auto Ancillary business
n Debt (around 1800 Cr), but should benefit from expected drop in Interest Rates
n Under-owned stock by Institutions. Only one major Fund house owns around 2.2% (in June 2016), which is down to 1.5% as of Aug 2016.
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OctoberQuest: Naresh Kumar Katariya
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+Points of Caution/Consideration
n Lack of focus from promoter
n GST: Currently, Textiles are Tax-exempt. Readymades at 2% Excise only.
n Delays in turning Apparel profitable
n Delays in monetisation of Realty
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OctoberQuest: Naresh Kumar Katariya
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+ 32
n Q n A
OctoberQuest: Naresh Kumar Katariya
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+
Thank You
33
OctoberQuest: Naresh Kumar Katariya