DONEAR INDUSTRIES LTD : Truly undervalued stock

Donear Industries Ltd:

Industry: Textile - Fabric/Ready made Garments

BSE CODE: 512519

Market Price : Rs. 20/-

FV / shares: Rs.2/-

Market cap: Rs. Rs. 102 Crore

Sales (FY - 2014) : Rs. 480 crore

         Even though numerous Textile companies in the lower end of the Industry trading inexpensive valuations,  the story is entirely different about the companies those who all are having strong brands and nation wide presence. We know the  market valuation of companies like Page Industries ( in fact  user of an international brand - Jockey), Kewal Kiran, Lovable Lingeries, Rupa & Company Ltd and Maxwell apparels...the list longs. At this situation we need to a close looking at a Micro cap company - Donear Industries Ltd. The company having over  three and half decades experience in the Textile Industry with fabulous track record of Product innovation, Capacity addition, Dealer & distribution network widening and Brand building.

          Donear Industries Ltd is engaged in manufacturing of medium and premium category fabrics like suiting, Trousers for Menswear and Women wear. Its manufacturing facilities are located at Silvasa, Surat and Dadra nagarhaveli. The company  offers garments under the brands Donear Suiting, Donear Royal Classico, Donear Gift4U, Donear Soft&Smooth..etc. Its brands includes top six brands in India. Donear having a presence of 29 states and 7 Union Territories in India with around 300 wholesale and 12000 retail distributors. It exports to 28 countries. 

         Promoters of the company holdings 75% of the equity capital and 15% held by  four  reputed FIIs - Merrill Lynch, City group, Mavi Investment Fund ( part of UBS) and Lotus global Investment. 

         As per the last full-financial year statement, out of the Rs. 480 crore revenue reported by the company, 89% comes from fabric, 8% from garments and rest from yarns. While the domestic sales grew by 18% (YoY) its export increased by 45%. Last financial year the company reported a NP of Rs. 3.73 crore after considering depreciation of Rs. 22 crore and Interest of Rs. 29.5 crore. With a  Rs. 10.4 crore equity capital base it reported an EPS of Rs. 0.72. The first quarter of the current financial year ended June 2014, its  sales reported at Rs. 130 crore with an increase of 30%. At the same time NP increased from Rs. 1.44 crore to Rs. 3.96 crore. First quarter EPS stood at Rs. 0.78, ie, more than last full year. 

        Huge interest payment, because of it needs lot of working capital is the major reason of the poor bottom line performance of the company. The promoters were off to timely increase the equity capital base is a draw back. Textile Industry is a highly labour intensive and various schemes like TUFS, from central and some state Govt incentives for the sector will intensifies the competition in the Industry. However, Donear can overcome the competition through its top quality, strong brand and dealer and distribution network.

       With consumerism, rising disposable income and organized retail sector growth are major growth drivers for the company. The proposed hike in FDI in the Multi brand retail will bring greater investment in the entire value chain. 

      We believe that the stock deserves much higher valuation from the existing levels considering the fundamentals of the company and market fancy of the Industry moreover four reputed FIIs having considerable stake among the floating stock. 

Discalimer: I/My dependants have no vested interest in the above mentioned stock.