Saturday, December 27, 2014

Sudar Industries Ltd: Buy
CMP: Rs.37.95
Introduction: Sudar Industries Ltd (SIL), formerly known as Sudar Garments, is a Raigad, Maharashtra, based (i) integrated garments producer with the capability to design and manufacture ready-made apparel and (ii) manufacturer of high-end fine chemicals servicing the pharmaceutical and agro-chemical industries. The company's capabilities include, in-house inspection of garments and accessories, cutting, body stitching, button hole, buttoning, washing, ironing, finishing and final packing. SIL is present in the fashion industry with the latest fashions

In 2012, Sudar Industries extended to the manufacture of pharmaceutical intermediaries and agro-chemicals following the acquisition of a chemical unit in Vadodara (Gujarat, India). The company specializes in the manufacture of shirts, trousers and other apparel for men, women and children.It markets apparels, under its own brand "Glory to Glory". The company is also engaged in contract manufacturing for Indian brands and merchant exporters. The core business (apparels) contributes approximately 62% to the company’s top line while the chemicals and intermediate business (specialty chemicals) accounts for the remaining 38%.

The Company has two manufacturing facilities as under :
  • Integrated Apparel Manufacturing facility at Khalapur, Raigad District, Maharashtra employing state of the art technology and automated machineries to manufacture readymade garments, catering to men, women and children.
  • Manufacture of high end fine chemicals at Baroda providing intermediate products for Pharmaceutical Industry and Agro Chemical Industry
Subsidiaries: The company has subsidiaries in United Kingdom, Dubai and Singapore under the names of Sudar Industries UK Ltd, Sudar Global Industries FZE and Averlin Industries PTE Ltd respectively. 

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Shareholding Pattern: The promoters hold 32.94% while the general public holds 67.06%. The FIIs hold 0.38% of the shares of the company. The corporate bodies hold a whooping 39.79% of the shares of the company. Among the general public, Benzo Petro International Ltd holds 17.57% while Prudent Fintrade Pvt Ltd holds 4.90% shares of the company. 

Financials: In FY14, the company came out with excellent set of numbers. The Net income of the company in FY14, zoomed to Rs.856.43 Cr as against Rs.440.02 Cr in the corresponding period previous year. The net profit of the company in FY14 came out to be Rs.41.07 Cr as against Rs.25.58 Cr in FY13. The EPS of the company for FY14 came out to be Rs.18.25 as against Rs.11.38, in the corresponding period previous year.

For Q2FY15, the total income of the company came out to be Rs.302.79 Cr as against Rs.223.04 Cr in the same period previous year.  The PBT of the company for Q2FY15 came out to be Rs.19.25 Cr as against Rs.7.02 Cr in Q2FY14. The net profit of the company almost tripled to Rs.13.01 Cr in Q2FY15 as against Rs.4.74 Cr in Q2FY14. Th H1FY15 EPS of the company stands at Rs.10.87. There were also marked improvements in the OPM and NPM. 


  • It entered into the realm of specialty chemicals, not as a deviation
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    from its core apparel 
    business but to diversify. For the company, the chemical business represents, low-capital intensive and simultaneously cash generating vertical. Since it already possessed the infrastructure from Benzo Petro International Limited, it chose to embark on the business. Moreover, India being at the forefront of cost-quality benefit-providers globally, choosing to pursue this vertical made good business sense. 
  • SIL is authoring a paradigm shift in its future level of operations. A period of exponential  growth has been engineered, driven on the back of a multi-layer strategy. While simultaneous changes are being made, it is yet being seamlessly done, without either disturbing the existing business verticals or the delivery schedules to the customers--the work having started in the previous year, all these are going live in 2015.
  • There is improvement in raw material sourcing. The facilities are being made regulatory compliant. Marketing tie-ups being made in quality conscious developed markets, with objective of making SIL a significant world player. The present change is so enormous - SIL of yesterday cannot be extrapolated to assess the SIL of tomorrow. The Company is getting fast tracked.
  • The Company purchases cutting-edge equipments (replacing legacy equipments wherever possible) with the lowest material consumption norms. Not only that, it maximizes the effective use of equipments with the basic objective to reduce consumption.
  • The Company is proposing to diversify its activity to trading business of Iron ore, agro based commodities, other metals and minerals. The Company has obtained necessary approvals from the Shareholders of the Company through Postal ballot, and the expects good business deals in new markets.
  •  The Company is in the process of implementing an integrated ERP package and enhance the information availability for informed decision-making. The company possesses two globally benchmarked manufacturing facilities.
  • The company is trying to create a strong product pipeline catering to customer needs and pursue inorganic growth opportunities. It is also creating marketing platforms in regulated markets and digging deeper into semi-regulated markets with existing products. It trying to enhance market share in areas where it is already present and consolidate the core business in domestic and emerging markets. Moreover, it is expanding its presence in South East Asian markets, UAE, London and European markets.
  • In FY13, it ventured into industrial uniforms, mainly for exports. In the industrial uniform category, the product comprised of industrial coveralls of various models, specially designed for oil fields and electro-mechanical industries. The company has also decided to include branded-designed-uniforms for taxi drivers, courier companies, hotels, hospitals etc. Nearly 60% of its output is exported indirectly through export houses, leveraging on the presence of the Jawaharlal Nehru Port only 30 kms away, from its location. 
  • The book value of the shares of the company is Rs.90.96. It  has a comfortable debt:equity ratio of 1.03, RoCE of 24.16% and RoNW of 24.49%. At the current market price of Rs.37.95, the company has a market capitalization of only Rs.85.39 Cr against FY14 revenues of Rs.856.43 Cr, indicating a very attractive Market-cap: Sales ratio. Moreover, though the FY14 was a challenging year amidst global economic uncertainties and recession, the company performed reasonably well which is evident from the results.
  • The company has been successfully engaged in manufacturing chemical products in a wide range of activities which includes 6 (six) Pharmaceutical Intermediates and 11 (eleven) Agro-chemical Intermediates. It has already added good clients for the business relating to chemical products. The export sales in chemical segment of the Company for financial year 2013-14 was Rs. 5,391.32 lacs against Rs. 2020 lacs in financial year 2012-13. The momentum is expected to be maintained in FY15, too. 
  • The Company has been rated 5A2 by Dun & Bradstreet indicating that it has a tangible networth as per the audited financial statements and indicates a fair overall status.

  • Conclusion: SIL is present in a competitive market with challenges from big and the small players in the industry. Due to this, the price sensitivities get tested where reliance is placed more on volume based business. This threat, however, does not affect Sudar because of its control over raw material sourcing. The company is a dominant player and has been able to control quality, save timelines, manage costs and deliver at a short notice. SIL enjoys a pricing power with an ability to get the price lower and yet manage to get higher returns than other competitors. The key strengths of the company include its manufacturing infrastructure and the ability to deal successfully in a complex market situation. Sudar has set ambitious goals for 2014-15 in expectation of an upward trend in the global economy. The senior leadership team has set in motion a set of strategic initiatives to enhance revenue and profitability. The focus will be expanding markets, portfolio profitability will be analyzed on a continuous basis. By implementing these strategies, Sudar aims to increase revenues and margins higher than the industry average. The company is targeting to emerge as cash flow positive, eliminate leverage and enhance shareholder returns.

    The scrip seems to have formed a temporary bottom on last Friday. The investors can buy the shares of SIL at the CMP of Rs.37.95, for a short term target of Rs.47-48 and medium term target of Rs.61. 
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