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You are here : IndiaNotes >> Research & Analysis >> Companies >> S P Apparels Ltd. >> Research

Pick of the Week: Buy S P Apparels at CMP and add on dips Rs 327 - Rs 333 band

HDFC Sec | 12 Mar, 2018  | Follow Author | Add to my Favourites 
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Promoted originally as a partnership firm by Mr P Sundararajan in 1989, S.P. Apparels Ltd (SPAL) is an integrated readymade garment manufacturer of 100% cotton garments, primarily for the children’s wear export market. Its manufacturing facilities are located in Tamil Nadu. , The company has 23 manufacturing units in and around Avinashi, District Tirrupur (knitting, processing, garmenting, printing and embroidery facilities), and in Salem (spinning facility). The company exports to renowned brands/marketers in the EU and US, lending stability to operations. It entered the domestic retail market in FY07 by acquiring a 70% equity stake in Crocodile Products Pvt. Ltd., the Indian arm of the Singapore-based Crocodile International Pte. Ltd. (which markets the menswear brand, Crocodile). SPAL tapped the primary market with an IPO of 89.2lakh equity shares @ Rs 268 in August-2016.


View and Valuation

SPAL has witnessed an addition of new customers outside of UK, which has reduced its client concentration as well as geographic concentration risks. Its retail venture in India and UK subsidiary SPUK have turned around, and could become profitable at PAT levels in FY18. It has been increasing its capacity to meet the growth in order flows from customers. Backward integration is expected to be completed by FY19, post which the company is likely to witness strong margin expansion. The shifting of apparel exports from China to other emerging markets owing to cost competitiveness has opened a large opportunity for companies like SPAL, and it is fully geared to take it on.

SPAL seems to be a quality midcap stock engaged in a recession-proof business, and growing at a decent pace (though having its own share of risks), and the current valuations leave scope for a rerating. At CMP of Rs 367, the stock quotes at 11.4x FY20E EPS. We feel investors could buy the stock at CMP and add on dips to the Rs 327-333 band (10.25x FY20E EPS) for sequential targets of Rs 419 (13x FY20E EPS) and Rs 467 (14.5x FY20E EPS) in three to four quarters.

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340.50 -6.85
343.60 -7.00
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Disclaimer: The author has taken due care and caution to compile and analyse the data. The opinions expressed above are only the views of the author, and not a recommendation to buy or sell. Neither the author nor accept any liability whatsoever arising from the use of any of the above contents.