Tuesday, 12 January 2016

Arrow Textiles Ltd - Value Pick - Proxy Play


The Ace Investor
Arrow Textiles Ltd
  Listed on both NSE: ARROWTEX & BSE: 533068
Currently trading around 47 with a market cap of around 90 crores.
Promoters hold 68.63% stake.
It has a Debt of around 12 crores.
Total Reserves too are around 12 crores.

Established in 1992 Arrow Textiles Ltd has been into manufacturing wide-range of products for the fashion apparel industry including woven tapes, woven labels, and elastic tapes.

Arrow Textiles supplies key branding items for some of the biggest brands and almost has a full portfolio with clients in entire underwear industry such as Jockey, Amul Hosiery, Rupa Hosiery, VIP, Euro Underwear, Lux Industries.

Arrow also has Spykar, Allen Solly, FILA and BEING HUMAN among other brands as its client.

The company produces 10000+ different items and processes 175 orders a day for customers in and around India.

The company is owned by Jaydev Mody the promoter of Delta Corp and the day to day operations are taken care of by MD Mr Chand Arora.

The company operates a quick service platform on http://easylabelsonline.in

The company is headquartered in Nashik, Maharashtra and has key executives in Mumbai, Delhi, Tirupur, Bangalore, Kolkata, Chennai to deal with their customers.


The company as it is clear by now is a very interesting Proxy-Play to fashion apparel industry as well as entire undergarments industry which is trading at expensive valuations.

Coming to the financials, Arrow has shown stable growth :-

As you can see the company has grown at a stable place, Though it has not been very aggressive.

Due to raw material prices being low, Arrow should have better margins for FY16 and as it has reported in September Qtr numbers the OPM has increased to 35.12% against 24.20% YoY.

For full year FY16 the company is expected to post a net profit in the range of 5.5 to 6 crores with EPS expected to be in the range of 3 to 3.50.

Company is having healthy 3 year ROCE average of 17.50%+

Promoter holding is at 68.63%, FIIs don't have any stake and DIIs own 0.01%, Public holding more than 1% was nil which means a large concentrated equity if the company is only with promoters and the remaining with small retail shareholders in the company.

We have seen how the undergarments story and branded apparel story has played out in the markets, Mega multibaggers like Page Industries and its peers command very premium valuations and in the recent past we have seen proxy play companies such as Premco Global which is a supplier to Hanes underwear for tapes has re-rated massively.

Premco Global though has a slightly different business but is easily comparable to Arrow Textiles because the target customer (b2b) is in the same sector and both Arrow and Premco indulge in key visible branding products for brands.



Premco Global having 70 crores top line is trading at almost 300 crores Market Cap which means Mcap/Sales is around 4 and Current P/E is 26+ whereas Arrow Textiles current Mcap to Sales is around 1.8 and P/E is at 16.

Premco ofcourse is the bigger company but important factor is that Domestic companies are always rated better rather than Export dependent companies. Premco's dependence on exports shows in its numbers as the company's exports amount to almost 75-80% of total revenues which should be a drag for valuations which maybe is priced in at 26 p/e currently.

Premco with export dependence is valued at 26 times and Arrow is at just 16 times, Arrow should have advantage over Premco because of a bigger product portfolio and no risks of foreign currency fluctuations and eurozone crisis etc..

If we assign a p/e of 30 to Arrow Textiles the stock should be above 90-100+.

The proposed Goods & Service Tax (GST) is a boon for companies which operate in sectors such as fashion apparel and undergarments where there is large market share held by unorganized players. GST will put all companies under one tax bracket thus, minimizing the pricing power unorganized players have due to softer taxation.

 Page Industries is trading at P/E of 70, Rupa is trading at P/E of almost 40, Lux Industries too is at 50+ P/E and even the best fashion apparel plays are trading at premium valuations.

In such a scenario it becomes very difficult for Investors to play large-scale changes like GST which will impact the sector in a big way because there is not much value left for investors to get into these biggies. This is when proxy-play becomes attractive and rightly so, Our earlier proxy-play was Vidhi Dyestuffs a food colour play on Packaged Food sector when all Packaged Food companies are at premium valuations... Vidhi has done 17 to 80 in no time and now trading at almost 25-30 p/e which is pretty close to valuations of 40+ which the Packaged Food sector usually commands in the market.

Proxy-plays usually get close to expensive valuations their clients command.

Market Cap wise Arrow is at less than half the valuation Premco commands and I think there can be more rally in Premco too which means Arrow has a wider gap to cover.

I try to understand and dig deep into a company as much i can and in the pursuit I managed to get the number of MD Mr Chand Arora and in hope to get some answers i called him up.

In the short chat i had with Mr Arora there were major takeways for the investors.

Mr Chand Arora claimed that these biggies are their repeat customers and they will always retain it in future too, When asked how? He said over the years since inception the company hasn't "LOST" a single client and the the company has the best technology in the world for its business.

I then einquired as to why the there hasn't been any aggressive growth in terms of revenues. Mr Arora was quite clear on this one and said that they don't run behind small companies and are interested to work with big brands only and at great margins rather than having too many small clients and killing the margins.

A key issue I found in Arrow was lack of dividends which is a problem with the whole Delta group at large (magnets etc)

When asked about Dividend, Mr Arora said that as per the norms he cannot disclose or discuss dividends with me but suggested that I should be positive about it this time around (hinting at a possible dividend this year).

All in All, I feel Arrow Textiles is a quality+value proxy play for a very premium and expensive sector at large.

The idea is simple, The clients of Arrow like Page Industries for instance will keep growing in terms of their manufacturing activity to get to the next level of growth and with its clients manufacturing activity increasing Arrow will be a major beneficiary. Page Industries will benefit when the end consumer buys its product but Arrow benefits in the earlier cycle when Page markets its products. When you market a product you do need branding on it so that reduces any inventory risks in Arrow Textiles that the apparel and underwear sector directly will otherwise be having.

Apart from the fundamentals, Technically too Arrow Textiles is looking really hot right now. Arrow Textiles has broken out of a major technical pattern on daily charts aided with all time best volumes which can propel it to great heights.




Note: The above is not a research report but information as available on public domain and it should not be treated as a research report.

Registration status with SEBI: I am not registered with SEBI under the (Research Analyst) regulations 2014 and as per clarifications provided by SEBI: “Any person who makes recommendation or offers an opinion concerning securities or public offers only through public media is not required to obtain registration as research analyst under RA Regulations”

Disclosure: It is safe to assume that i might have Arrow Textiles Ltd in my portfolio and hence my point of view can be biased. Readers should consult their financial advisory before any investments.

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87 comments:

  1. I think allen solly is from Madura garments, PFRL/AB group

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  2. how to buy sir ... ? this stock lock uc pls help me .?

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  3. Waited impatiently but it was in UC for the last two hours.

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  4. Good Call, Circuit Call :-)
    analysis looks good Prembhai !

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  5. Hi Sir,
    Thanks for the valuable pick. It is already at UC. Not sure for how long it will stay on it.

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  6. couldn't able to buy it as it reaches UC in seconds. same happened with Saksoft:(. Even though i follow you but still cant buy when you recommend:(

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  7. 18 lac shares outstanding on BSE & NSE. Wow. Brilliant stuff

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  8. Sir like always locked in uc

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  9. Prembhai, what can be TP for Arrow textile for 1 year view.

    regards

    Kvjrkrao

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  10. Sir What is the Future target for PMC Fincorp Share.. Sir i am in huge loss. i bought this share for Rs.6.. i could not buy Arrow Textile.. it was locked in upper circuit

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  11. UC on both exchanges ...will try to buy 2mrw during opening bell :-)

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  12. Good business
    Are Industries Ltd in similar business

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  13. Great, I was lucky to pick 500 almost at uc. Back to back circuits coming.

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    Replies
    1. How did you manage buddy when there were so many in Queue?

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  14. Seems this was leaked before 3:20 to few as by 3:20 it was locked in UC.

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  15. HEY PREM WHAT TO DO IN VIDHI NOW TO BOOK OUT OR NOT RESULT ARE IN STRESS...HOLD OR SOLD
    PLEASE GIVE EXIT STRATEGY ALSO ..
    THANKS....

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  16. Hi ACE .... mny thansk for ur new stock n as usual ,,, hit UC bt d strange part is dat Im able to buy 1700 from 3500 .... n will try tommarrow again ... hope ARROW also perform lika ur all past recc. stock

    Ur detailed analysis on evry stks gives little bit more comfort n much more confident to buy n gain awsm profit ,,,,, holding SAKSOFT :))))))

    sachin

    v all r thankfull to U n for ur efforts towards all of us

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  17. No,at 3.20 i was able to book 200

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  18. Hi Sir, What are your views on Associated Alcohol and Beverages. It has very low debt, very low equity base and good promoter holding. Posting good profits consistently. Looks like it is going to be next GM Breweries.

    ASSOCIATED ALCHOLOL & BREWERIES LTD is contract manufacturer for Famous brands

    Smirnoff Vodka - The world’s leading vodka.
    Captain Morgan rum - The number 3 spirit brand by volume in the US. number 7 worldwide.
    HAIG Scotch whisky - A frne whisky from the oldest distilling family in Scotland.
    Masterstroke whisky - The latest brand from liquor company Diageo-Radico.
    Glen Drummond single malt scotch whisky - First locally battled single malt premium scotch whisky in India.
    Royal Crown whisky - Scotch blended grain-based Indian Made Foreign Liquor.

    Your valuable views please.

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  19. Your view on Munjal Showa Limited

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  20. Friends, Please let me know how to apply so that I can also get Arrow.

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  21. whats the point. No one can buy in any case.

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  22. Today steep fall. Everyone can get it..

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  23. I still haven't received saksoft in my account... Please help. I'm new to stock market

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  24. Yay! I got them 200 Qty executed.

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  25. Today given good opportunity to enter below 50 and later closed in UC..Thanks to mid caps and small caps mayhem in market today.

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  26. 2 UC , cicuit broke and we got a chance to buy :-)

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  27. This is label maker. Please keep that in mind. You're comparing label maker to an apparel maker. The Chinese are the global leaders in labels, zippers, buttons and patches. They have established a foothold in India, but are in their preliminary stages. So in my humble opinion you have grossly overvalued the company. Compare apples with apples, not with oranges. Again, remember it is a label maker.

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  28. Dear ace, your analysis is good, but I think you have to concentrate also about market analysis, I mean to say growth scenario of Sensex and nifty 6 months or 12 months time for long term investors to derive good wealth from market....i am hoping that you will work on this in future also....

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  29. Even when market crashing your picks are on daily upper circuits

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  30. sir whats happening in market ?? all my porfolio stocks prices falling like some crazy selling in year 2008 . Is some crisis is anticipated ?

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    Replies
    1. When the talks of 2008 start, its safe to assume that bottom is near.

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    2. Whn is ur new recommendation is cmin

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    3. Whn is ur new recommendation is cmin

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  31. Dear Ace,
    Your take on Gujarat Automotive Gears at current price levels?
    Best Regards,
    Ajit

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    Replies
    1. Not happy with the stock's performance, Can keep some, otherwise shifting to better opportunities if any spotted

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  32. Hi ,
    SAKSOFT going down continuosly ? Do we hold ?

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    Replies
    1. From 260 to almost 500 in few days, profit booking is obvious.

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    2. You Smartly offloaded the holdings at 470 levels...

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  33. Dear Prem ,
    i told u to give sell calls for ur buy calls....
    stil waiting for Vidhi
    hold or sold
    that will much better for ur followers

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  34. Hi prem as compared to all your other stocks,this stock is moving in downward trend..can u please give update on the stock as it has already given two lover ciruits continuously..can u please respond as soon as possible..

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    Replies
    1. Market is bad, most of the stocks are going down.. Market breadth has been like this lets wait for the storm to get over.

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  35. I have lost more than 40K on investing in your recommendations.. I have no idea what to do. What's your advice?

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    Replies
    1. People like you, who want easy money make losses. Stop blaming others, do your own research before getting into stocks.

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    2. Mr. Wolf of Dalal street, I only said I bought this based on the blog by our Ace, I never put the blame squarely on him. End of the day I agree the blame lies with me since it's my decision to invest based on someone's recommendation. I would rather advise wolves like u to stop passing discriminating messages like this where u hide the facts. There was no need to misinterpret my message like above. I can tell ace directly that he is wrong if I find anything wrong in his findings.

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  36. All, Please help. Not sure what;s going on. Both Arrow and Saksoft are at LCs on daily basis.

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    Replies
    1. Are you a trader or an investor? In such a market scenario things like this will happen but we have to avoid reading too much into it and panicking

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    2. Thank you sir....I bought arrow at 55.8. I am fine to invest for medium term (6 months). Please let me know if I should average it.

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    3. Rohit : 6 months horizon is TRADING according to me,, and these posts are not HOT TRADING TIPS.

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  37. Have learned in a hard way. Never get carried away in emotion and buy stock because some blogs are writing. Lost almost 3 lacs in just one week in saksoft and arrow textiles. Ace investors you cud hv warned Ur reader ant this. Now u r saying saksoft reached 475 cm 260 this u cud have told before. Earlier v never got chance to buy saksoft so when v had placed order in last Wednesday at 475 we got trapped. Ditto for arrow textiles at 57.60

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    Replies
    1. Please unfollow... Why should one not expect correction after a stock has rallied almost 100% in few days.

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    2. Saksoft was available very next day of blog post incase you missed at 3:20 on 22nd December.

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    3. Sir so are you suggesting that because saksoft rallied from 275 to 475 it should go back once again to 275. Or maybe still worse than that ?

      Also now what's your call. Today when sensex rose 500 points still Saksoft crashed into LC. On moneycontrol some bloggers are saying that saksoft will go to 150. Do u think so ? Can you tell that if we are willing to hold the saksoft share for say about 6 months then will we see the price of 475 back or you think it is impossible. Pls reply as it will help hundreds of people like me who have invested at higher price.

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    4. According to me profit booking is over in Saksoft now, Can bounce back anytime from here!

      And i do not suggest trusting moneycontrol message board to get concrete views about stocks, there people attack the stock's message board, post all kinds of baseless stuff and get away!

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    5. Respected sir thanks for replying on Sandler. U R right for money control msgboard today someone said Sandler will go to Rs. 120. I'm shocked.!!!

      FYI From last 3 days saksoft giving chance to exit I.e. LC open in morning so I thought that as u said Maybe profit booking over so share will start UC & hence not selling.

      But post lunch session once again saksoft crashes & like from last 10 sessions it closes in LC. Really crying at the merciless carnage of saksoft.

      Do you see 475 price again for saksoft. If yes then how many months or years I will have to hold. Pls revert sir . Not only me my family will also bless you. Pls guide for God's sake. Thanks.

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  38. It's going down continuously from 58, today there was seller cap.
    Exit ?

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  39. Replies
    1. There is more pain in morepen . so avoid

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  40. hi I am tried to catch saksot 290 onwards and finaly I got at 430rs..
    I can hold 2years frame please suggest hold or sell

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    Replies
    1. SAKSOFT was available very next day of blog post.

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  41. Saksoft once again back to its projectile motion.best time to grab.

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  42. Dear Ace Investor, when are you posting tour next scrip and research note?

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  43. Hi Sir, I posted twice previously for your views regarding Associated Alcohols & breweries ltd, but I didnt get any reply from u. Can you please give ur views on it as u already recommended Pincon Spirits. I felt associated alcohols fundamentals are stronger than Pincon. Also the brands what associated alcohols is manufacturing are the top brands in the world. Posting again for your valuable views please...

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  44. Prem Ji can you plz give your views on Aksh Optifibre

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  45. dear Sir, can we average Arrow textile?

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  46. Hi sir,please share your views on HFCL and JVL agro

    Thanks in advance

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  47. Hi sir , please share ur views on HFCL and JVL agro

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  48. Arrow Textiles results out

    Dec Sales at 13.43 crore and Net Profit: 1.42 crore

    Sales up YOY but NP slight decrease YOY..Fundamentally good stock...results on BSE Website

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  49. Hi sir ,

    I was bought arrow textiles 46Rs range .. May I know can hold ..? Kinldy reply ASAP ... Thanks for your valuable reply

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  50. Hello Sir,
    Thank you for sharing this valuable information. After reading this i bought this stocks from one of the stock broker in mumbai.

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  51. Sir Today i bought aerrow textile @38 with tgt price 47.looks bottom is near and a bounce is expected very soon.Because of this volatile market got a good chance to entry.thanks for your detail analysis

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  52. Dear Ace,

    Please comment on the result. Do update.

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  53. Arrowtex is 50% down after your picks .i have brought at @48.pls comments your view .mn

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  54. Arrowtextile I have brought at @48 .pls comments your view

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  55. Kindly comment your views on the results sir ...Trading 40% lower than your recommended price sir.. Can we average out ???

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    Replies
    1. Results were decent, Not excellent... There is absolute carnage in the market of Mid and Small Caps, Arrow held on to the support of 38-40 for quite a while but ultimately gave up.. As an Investor we should have patience and wait for long-term because we are not traders...I can understand your frustration but market has not moved as per expectations and this sudden crash has butchered all small and mid caps, Ours are no different.

      In bull market everything is gorgeous but when corrections come things start looking ugly, that is how market works and we only have to LAST with patience till the next cycle when Bulls again take charge.

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