Underwear with holes??
In a recent edition of the DNA, there was an article titled "Underwear stands out as investors lose shirt". They had basically covered the underwear industry and written on the prospects of the industry.
Particular mention was made for Page Inds and the way customer has shifted to brands with Jockey being the most successful of them. The way the company reports numbers will surely make anybody feel that the business is really going great guns.
So I thought I will write down what I have understood from the numbers and otherwise.
- The promoters themselves offered their shares for sale in the IPO in March 2007. They probably got some 50 cr. from the sale of their shares. Company itself raised 50.8cr. from issue of new shares. Not too much to read into. But there was interesting point in all this. Company paid an issue expense of around 8.2cr. If it is for its share of the IPO, then that would have meant a fees of roughly 16% for the money that was raised. Since that number looks unbelievable I think its fair to assume that company paid for the expenses of the share sale by the promoter. Though its a small matter of 4 cr., it doesnt smell good. But anyways the amount is too trivial to be of interest to most.
- Lets have a look at the margin profile of the company:
Before 2006, the average operating margin for the company in the four years before would be around 12-13%. Company did the IPO in March 2007. So investors would have had maximum concentration on 2006 numbers. The operating profit margin changed dramatically in 2006 touching 19-20% range. And since then it has stayed there and thereabouts. That is interesting, isnt it?
- Now lets understand some inventory numbers for the company.In the table below I have just tried to come up with some basic inventory numbers. I have compared the Raw Material Consumed (RMC) in a given year with the year end inventory of the year and computed the inventory in terms of "number of days". I understand that inventory is for the future and not a reflection of the past performance, but here I am more focused on the trend than the absolute number itself.
As can be seen, the inventory has been going up almost one way, except for a dip in 2009. Given that growth rates of the company have remained in the 30-40% range throughout the period, it is very interesting that they had to support the growth with higher and higher inventory in terms of number of days.
- Now let us get onto something even more interesting.
Its just a simple calculation of the cumulative cash flows the company has generated since FY2007. As can be seen, the cumulative "PAT + Dep" number is 201.6 cr. That is for the cash inflows. Now if we add up the cumulative capex and cumulative change in working capital in the same time frame (229 cr.), it turns out the free cash flow generation has been negative. So even though the profits have multiplied in these years, company has not been able to generate cash.
(Here the working capital changes have been calculated net off cash roughly)
- Looking at all this, those who know the company might turn around and say how come the company has been paying dividends and has good payouts, when the cash flows were not existent?
Well, the answer to that is reasonably straightforward.
The approximate outflow on account of dividend since the year of the IPO, is roughly 100 cr. The total money raised through IPO and incremental debt in the same time frame is about 132 cr. So basically company has had to take debt to
pay out the kind of dividends that they have paid. The difference of roughly 30 cr. between dividend paid (100 cr.) and total money raised (131 cr.) has gone to support the cash flow gap that I have explained in the point just before this one.
- And lastly, as of March 2007, promoters held 80.69 lac shares. As of June 2011, they held around 67 lac shares. They have sold roughly around 14 lac shares in the open market in these years at various prices. If I assume average sale price of 700 (CMP:2400), then they would have taken roughly 100 cr. by selling their shares in the market. In this time frame,their average holding of the company would be roughly 65%. So out of the cumulative dividends of 86.5 cr, promoters would have netted around 50-55 cr. And now if I add the share sale in the IPO of 50 cr., the promoters have netted anywhere between 200 cr to 250 cr. in these years.
As the promoters earned this money, the company has ended up with a debt of 115 cr, up from 25.3 cr., inspite of the having raised 42 cr. in the IPO.
I am finished with my numbers analysis of the booming undergarments business of Page Inds.
I just have one question to anybody who is reading this. Not exactly related to all that I have written above but nonetheless I will go ahead.
Have you ever worn an underwear with a hole? Does it last long?
In a recent edition of the DNA, there was an article titled "Underwear stands out as investors lose shirt". They had basically covered the underwear industry and written on the prospects of the industry.
Particular mention was made for Page Inds and the way customer has shifted to brands with Jockey being the most successful of them. The way the company reports numbers will surely make anybody feel that the business is really going great guns.
So I thought I will write down what I have understood from the numbers and otherwise.
- The promoters themselves offered their shares for sale in the IPO in March 2007. They probably got some 50 cr. from the sale of their shares. Company itself raised 50.8cr. from issue of new shares. Not too much to read into. But there was interesting point in all this. Company paid an issue expense of around 8.2cr. If it is for its share of the IPO, then that would have meant a fees of roughly 16% for the money that was raised. Since that number looks unbelievable I think its fair to assume that company paid for the expenses of the share sale by the promoter. Though its a small matter of 4 cr., it doesnt smell good. But anyways the amount is too trivial to be of interest to most.
- Lets have a look at the margin profile of the company:
Before 2006, the average operating margin for the company in the four years before would be around 12-13%. Company did the IPO in March 2007. So investors would have had maximum concentration on 2006 numbers. The operating profit margin changed dramatically in 2006 touching 19-20% range. And since then it has stayed there and thereabouts. That is interesting, isnt it?
- Now lets understand some inventory numbers for the company.In the table below I have just tried to come up with some basic inventory numbers. I have compared the Raw Material Consumed (RMC) in a given year with the year end inventory of the year and computed the inventory in terms of "number of days". I understand that inventory is for the future and not a reflection of the past performance, but here I am more focused on the trend than the absolute number itself.
As can be seen, the inventory has been going up almost one way, except for a dip in 2009. Given that growth rates of the company have remained in the 30-40% range throughout the period, it is very interesting that they had to support the growth with higher and higher inventory in terms of number of days.
- Now let us get onto something even more interesting.
Its just a simple calculation of the cumulative cash flows the company has generated since FY2007. As can be seen, the cumulative "PAT + Dep" number is 201.6 cr. That is for the cash inflows. Now if we add up the cumulative capex and cumulative change in working capital in the same time frame (229 cr.), it turns out the free cash flow generation has been negative. So even though the profits have multiplied in these years, company has not been able to generate cash.
(Here the working capital changes have been calculated net off cash roughly)
- Looking at all this, those who know the company might turn around and say how come the company has been paying dividends and has good payouts, when the cash flows were not existent?
Well, the answer to that is reasonably straightforward.
The approximate outflow on account of dividend since the year of the IPO, is roughly 100 cr. The total money raised through IPO and incremental debt in the same time frame is about 132 cr. So basically company has had to take debt to
pay out the kind of dividends that they have paid. The difference of roughly 30 cr. between dividend paid (100 cr.) and total money raised (131 cr.) has gone to support the cash flow gap that I have explained in the point just before this one.
- And lastly, as of March 2007, promoters held 80.69 lac shares. As of June 2011, they held around 67 lac shares. They have sold roughly around 14 lac shares in the open market in these years at various prices. If I assume average sale price of 700 (CMP:2400), then they would have taken roughly 100 cr. by selling their shares in the market. In this time frame,their average holding of the company would be roughly 65%. So out of the cumulative dividends of 86.5 cr, promoters would have netted around 50-55 cr. And now if I add the share sale in the IPO of 50 cr., the promoters have netted anywhere between 200 cr to 250 cr. in these years.
As the promoters earned this money, the company has ended up with a debt of 115 cr, up from 25.3 cr., inspite of the having raised 42 cr. in the IPO.
I am finished with my numbers analysis of the booming undergarments business of Page Inds.
I just have one question to anybody who is reading this. Not exactly related to all that I have written above but nonetheless I will go ahead.
Have you ever worn an underwear with a hole? Does it last long?
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