RUPA & COMPANY LTD : SLOW & STEADY WINS THE RACE !!!

Scrip Code: 533552 / RUPA

CMP:  Rs. 165.00; Buy at current levels.
Short term Target: Rs. 205, 6 month Target – Rs. 250; STOP LOSS – Rs. 151.80; Market Cap: Rs. 1,312.16 Cr; 52 Week High/Low: Rs. 194.80 / Rs. 122.50

Total Shares: 7,95,24,560 shares; Promoters : 5,95,86,390 shares –74.93 %; Total Public holding : 1,99,38,170 shares – 25.07 %; Book Value: Rs. 31.76; Face Value: Rs. 1.00; EPS: Rs. 8.10; Dividend: 150 % ; P/E: 20.37 times; Ind. P/E: 11.94; EV/EBITDA: 11.36.

Total Debt: 168.34 Cr; Enterprise Value: Rs. 1,474.82 Cr.

RUPA & COMAPNY LTD: Rupa was incorporated in 1985 by the Agarwala brothers. In 1995, they took over the business of Binod Hosiery, a partnership firm incorporated in 1979. They have emerged, over the years, as the largest hosiery manufacturer in India. The company produces and markets knitted garments such as innerwear, casuals wear and also footwear. The company launched Thermocot, the first branded winter wear in India. The company is also pioneered in printing of the brand name in front of the vest. This made the logo as a design element which made the product to be flaunted. RUPA is one of the earliest brands which introduced celebrity endorsement. This created huge impact and recall value. The Company has a comprehensive portfolio of product offerings in the knitted innerwear, casual wear and thermal wear segment for men, women and kids. The company offers its products principally under the brand name Rupa viz, Rupa, Rupa Frontline, Jon, Air, Macroman, Macroman M' Series, Euro, Kidline, Bumchums, and Thermocot. Rupa & Company Limited sells its products primarily through own retail outlets, as well as through independent retailers in India and the Middle East. The company also exports its products. The Company manages more than 2000 Stock Keeping Units (SKUs), each of them for a particular brand, segment colour and size. The Company has its two wholly owned subsidiaries- M/s Euro Fashion Inners International Private Limited which sells premium men’s innerwear products under the brand “EURO” and Imoogi Fashions Private Limited which has recently launched apparel for kids of 0-12 years of age under the brand “IMOOGI”. Rupa also operates a Wind mill for power generation. The company is locally compared with Lovable Lingerie Ltd, Page Industries Ltd, V2 Retail Ltd , Trent Ltd, Brandhouse Retail, CESC Ltd, Future Retail, Arvind Ltd, kewal Kiran Clothing Ltd, S Kumars Nationwide Ltd, Koutons Retail Lyd, Maxwell Industries Ltd and Globally with I.T Limited of Hong Kong, Dickson Concepts (International) Limited also from Hong Kong, Industria DE Diseno of Spain, Inditex SA of Spain, Gunze Ltd of Tokyo, Levi Strauss & Co of US, Gucci Group NV of Netherlands, Tommy Hifiger BV of Netherlands, Marc Jacobs International LLC of USA Calvin Klein Inc of USA and Donna Karan International Inc. form USA.

Investment Rationale:

Rupa & Company is the number one knitwear manufacturer in India in terms of revenues of Rs. 829 crore for the year ended FY12. Rupa sells more than 12 million pieces of inner wear every month. Rupa’s competitive advantage lies in its owned Brands which have grown over the years, a product line range named $ DOLLAR as a brand across all categories, a formidable reputation of “Great Quality at Great Price points”, and a fact that it accepts the buyer’s specification. Due to decades-long experience in successfully launching, nurturing and managing several winning brands in a pre-dominantly unorganized industry, RUPA & Co is acclaimed by the Limca Book of Records as the largest hosiery and innerwear manufacturing and marketing company in India, for a record eight consecutive years. Also RUPA is the first Indian company to launch bacteria-resistant briefs under its exclusive brand Euro. Rupa & Company Limited own three state-of-the-art manufacturing facilities at Delhi, Tirupur and Domjur with an overall capacity to produce 7,00,000 pieces a day. It has one of the largest distribution networks through 1 lakh retail outlets across 600 locations with a dedicated support of more than 950 dealers and distributors. The company is looking for an aquisition locally. The company’s June 13 quater net sales registered a 11.44 % increase and stood at Rs. 195.63 Cr from Rs. 175.54 Cr over the corresponding quarter last year. The company’s net profit registered a 27.77 % increase and stood at a record Rs. 14.26 Cr from Rs. 11.16 Cr over the corresponding quarter last year. Net Sales & PAT of the company are expected to grow around a CAGR of 13 % and 32 % over 2013 to 2015E respectively.

Outlook and Valuation:

India is the one of the world's largest producers of textiles and garments. The potential size of the Indian textile and apparel industry is expected to reach US$ 22,100 Cr by 2021, according to the reports by Technopak's Textile and Apparel Compendium 2012. Textile industry has made a major contribution to the national economy in terms of direct and indirect employment generation and net foreign exchange earnings. This sector contributes about 14 % to industrial production, 4 % to the Gross Domestic Product, and 17 % to the country's export earnings. It also provides direct employment to over 3.5 Cr people. The textiles sector is the second largest provider of employment after agriculture in India. Thus, the growth and all round development of this industry has a direct bearing on the improvement of the economy of the nation. The textiles sector has witnessed a spurt in investment during the last five years. The industry including dyed and printed, attracted Foreign Direct Investments (FDI) worth Rs. 5,674.45 crore (US$ 104 Cr) during April 2000 to February 2013. At the current market price of Rs. 165.00, the stock P/E ratio is at 15.65 x FY14E and 13.05 x FY15E respectively. The Earnings per share (EPS) of the company for FY14E and FY15E is seen at Rs. 10.54 and Rs. 12.64 respectively. Net Sales and PAT of the company are expected to grow at a CAGR of 13% and 32% over 2013 to 2015E respectively. On the basis of EV/EBITDA, the stock trades at 10.97 X for FY14E and 9.54 X for FY15E. Price to Book Value of the stock is expected to be at 4.89 x and 3.84 x respectively for FY14E and FY15E. It is expected that the company's surplus scenario is likely to continue for the next three years and will keep its growth story in the coming quarters intact. This is an very slow but steady performing scrip an hence,one can ‘BUY’ into this particular scrip with a target price of Rs. 205.00 for Medium to Long term investment.  

KEY FINANCIALS	FY12	FY13	FY14E	FY15E
SALES (₹ Crs)	711.00	829.00	931.78	1,021.23
NET PROFIT (₹ Cr)	43.55	64.77	83.85	100.51
EPS (₹)	5.48	8.15	10.54	12.64
PE (x)	34.15	22.96	17.74	14.80
P/BV (x)	7.56	6.12	4.89	3.84
EV/EBITDA (x)	18.12	13.32	10.97	9.54
ROE (%)	22.13	26.66	27.58	25.98
ROCE (%)	26.62	29.63	30.61	29.78

I would buy RUPA & COMAPNY LTD with a price target of ₹ 205 for Medium to Long term target. As I always say, I am a long term believer in markets & I do respect the markets and will keep a strict stop loss of 8 % or ₹ 151.80 on every purchase. (Why Strict stop loss of 8 % ?) - Click Here

READ HERE TO KNOW MORE ON LONG TERM INVESTING - CLICK HERE

VIEW THE POWER POINT PRESENTATION ON

RETURN ON CAPITAL