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Bang Overseas IPO looks fairly valued
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Sunday, January 27, 2008 |
Bang Overseas is raising money from the primary market to fund retail expansion. The company is coming out with an IPO of 35 lakh shares. Post-issue, the shareholding of the promoter and promoter group will reduce to 74.19%. The company will use the IPO proceeds to set up a manufacturing unit, as well as a warehousing and logistic facility.
BUSINESS: Bang Overseas operates in two business segments - textile trading and garment manufacturing. It is also into fabric designing. The manufacturing processes are outsourced to low cost countries like Turkey, Portugal, Mauritius and Europe. It supplies fabric under the brand name 'Bodywaves' to Indian retailers and apparel manufacturers like Arvind, Pantaloon, Provogue and Mudra. In late '02, the company launched ready-to-wear men's garment under the brand 'Thomas Scott'. Two-and-a-half years ago, it set up its first manufacturing unit, while the second unit commenced commercial production in '06.
The company is now aggressively expanding its retail reach and had set up 12 retail outlets by December '07. Nine of these are company-owned and three are franchisees. Going forward, it plans to open 88 retail outlets, half of which will be company-owned. It also plans to launch a women's wear brand 'Miss Scott'. Its products are also sold via 157 point of sales, including large format stores like Shopper's Stop, Pyramid and Globus.
FINANCIALS: The company has seen 70% CAGR in revenues in the past four years. However, its net profit has grown more than 140% on a compounded basis. Peers like Bombay Rayon and Kewal Kiran have shown similar growth over the same period. A 10% PAT margin is in line with its peers. However, as the company increases its retail presence, sustaining high margins will be difficult.
Bang Overseas generated over 20% revenue from exports in FY07, against 39% in FY06. This indicates that its retail presence is increasing. Currently, trading and garment manufacturing businesses contribute equally to Bang's profit margin. Going ahead, the contribution of the trading business is expected to fall to around 20% by FY09.
The brand 'Thomas Scott' contributed 8% to the total turnover in FY06, against 15% in FY07. On an annualised basis for FY08, the company is expected to clock sales of Rs 145 crore. This will result in a net profit of Rs 14 crore. Thus, on a post-issue basis, the earnings per share will be Rs 10.5, almost double that of FY07.
VALUATIONS: At the higher end of the price band, Bang Overseas is asking a P/E of 19 on post-issue equity dilution, based on H1 FY08 annualised earnings. The company cannot be compared with any of the listed players because of the small scale of its operations. Nonetheless, the business model is similar to that of Bombay Rayon and Celebrity Fashions, which are trading at similar P/Es.
Bang Overseas intends to be present in the entire retail value chain to capture the margins at each sales point. Retail presence will be its main focus. It's imperative for Bang Overseas to maintain its high growth momentum as existing peers are also available at the same price.
RISKS: Soaring real estate prices and thinning retail margins are a concern for existing big players. The fact that Bang Overseas plans to increase its retail presence can put its margins under pressure, as the scale of operations will increase.
Source : http://economictimes.indiatimes.comLabels: Bang Overseas, IPO |
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posted by www.OnlineEquityCalls.com @ 10:04 PM  |
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