- Language: English
- 1091 Pages
- Published: October 2012
- Region: Global
Cravatex Ltd: Alpha Recommendation
- Published: February 2012
- Region: India
- 42 Pages
- Katalyst Wealth
Cravatex Ltd – (BSE Code – 509472)
As you will find it repeating in the entire report, Cravatex is basically about getting exclusive distribution rights of brand FILA and Johnson Health Tech (the third largest equipment maker in the world) in India and some other countries for just Rs 1300 million.
Yes, the above is the entire story about Cravatex, and we have to describe it in one line.
It’s all about owning exclusive distribution rights of two premier brands, while the scale of opportunity for both the brands to grow in India being humongous.
In case of Cravatex, we may not be able to justify the Margin of Safety (MOS) in conventional terms, but then it’s a case where either one gets it naturally/intuitively or does not get at all.
During the last 1 year there have been some important developments, acquiring the sub-license of FILA in Europe being one of them and we therefore felt the need of releasing an updated report on the same.
KEY INVESTMENT HIGHLIGHTS
- Exclusive distribution rights for Johnson Health Tech Fitness Equipments in India and FILA in India & some parts of Europe for just Rs 1300 million: Cravatex retains the exclusive distribution rights for Johnson Health Tech ‘s fitness equipments in India, Bangladesh and Sri Lanka till 2025. Johnson Health Tech is the leading company in Asia while it’s the third largest in the world in the fitness equipment industry. Besides, Cravatex also holds the exclusive distribution rights for brand FILA, one of the world’s largest sportswear manufacturing companies.
- Humongous scale of opportunity:
In recent years, the fitness and sports industry in India is witnessing a paradigm shift with the change in middle and upper class lifestyles in small but significant ways. The average urban Indian professional is increasingly becoming health conscious and feeling the need to get into a fitness mode. Thus, the fitness industry has a huge growth potential as only 1.5% of the urban Indian population regularly practices workout.
- Earning high return on shareholder’s funds:
Over the longer term, the company can grow only as fast as it generates returns on the funds employed. Well, Cravatex does not have a great track record with pathetic 12-13% return on equity till 2008-09, however over the last 2 years the company has started delivering 20%+ return on equity and is on track to deliver a similar performance for FY 12.
- Very attractive valuations:
Cravatex is currently quoting at a market cap of Rs 1150 million, while it has net debt of Rs 140 million (as at 30th Sep’11), thus an enterprise value of Rs 1300 million. For FY 11, Cravatex recorded a net profit of Rs 67.9 million, while we expect the company to close the year FY 12 with a net profit of Rs 100-110 million. Besides as mentioned above, one gets exclusive distribution rights for the two finest and leading global brands FILA and Johnson Health Tech for just Rs 1300 million, while the scale of opportunity is huge for both the brands to grow immensely in India. SHOW LESS READ MORE >
1. An Introduction
Exclusive distribution rights for FILA and Johnson Health Tech
Key Investment Highlights
2. Business Overview
Main revenue streams
Margins – Economies of scale at work
3. Sports Goods sales – Overview
Sports Goods sales – Overview
Rs 1250-1500 million revenue from FILA India by FY 2013
Cravatex – Sub-licensee of FILA in UK and Ireland
Sportswear Industry in India
Reebok India – How is the leader performing?
4. Fitness Equipment Sales – Overview
Fitness Equipment Sales – Overview
Johnson Health Tech – Witnessing strong sales growth worldwide
Johnson Health Tech – Eyeing growth in commercial fitness in India
Fitness equipment industry in India
End-User segment – Institutional segment commands 76% market share
Proline Fitness stores
Key drivers for the fitness equipment industry in India
5. Management Profile
Shareholding Pattern – Incentive to drive the growth with 75% equity holding
Promoters/Management Profile – Sports and Fitness freaks
Low dividend payout and high return on shareholders’ funds
6. Financial Overview