Orbit Exports Ltd - Research Report

 

Private Client Research

Rating

Buy

Sector

Textile

Company

Orbit Exports Ltd

Reco Price
Rs. 280
Price Target (12 Months)
Rs. 450
Upside
60.71%

Date

28 October 2014
Sensex
26680.82
CNX Nifty
8027.6

Exchange

Code

NSE
ORBTEXP
BSE
512626

Increasing share of made up division in total sales will boost the margins.

Differentiable Products:
We particularly liked company’s products that are more focused to emotional touch points like festival sales, female fashion apparel and bridal wear where fabric design is of prime importance. The strength of the company lies in designing these fabrics and delivering them timely. To give a perspective, the company never produces the same design again and maximum shelf life for a design is less than 6 months. Usually Orbit makes design samples based on which client places orders. In this case clients are more focused on quality and design of the product and therefore are not too sensitive to the milder price fluctuation. This helps the company to maintain reasonable pricing power. It is important to note that Orbit with its design team and increasing share of in-house manufacturing capacity is able to tailor make designs and maintain the quality & production timeliness.

Targeting Festivals:
The strategy is to do festival selling – like Christmas, East, Halloween, Valentine's and Carnivals. These sales points and seasons help a lot in boosting the sales, and making products very popular abroad. For eg company’s participation in international trade events like Texworld at Paris and Christmas world in Frankfurt has resulted in the opening up of new business markets and a wider global presence. Hence company has strong marketing strategy for its products to boost export sales on regular basis. Company’s state-of-the-art weaving plant in Surat and the jacquard/dobby designs are created digitally and directly transferred to the memory of the machines, thereby eliminating even a minor margin of error. Hence these products have very good demand in Export Market.

Greater in-house manufacturing capacity to further improve business:
The total sales for Orbit in FY14 were 1.04 crore meter. However, the in-house production capacity was much lower serving to only 30% of total requirement. Nearing end of FY14, the company more than doubled its capacity by spending Rs 30 crores at Surat plant and will now be able to cater nearly 50% of FY15 estimated requirement. This according to us will help the company grow its volume as well as margins. Orbit has also benefited due to the government schemes of interest subsidy, capital subsidy and power cost subsidy provided to the fabric manufacturers.

Strong Financials:
Over the last decade, the company has undergone major restructuring in its business model, launched new products, reorganized its finances and entered new markets. As a result, it has attained a major financial turnaround, from a loss making venture into a profit making one. The company’s customer base, which reflects marquee high-end designer wear companies from across the globe, has now also included the rapidly growing Indian fashion apparel sector. Company has strong ROCE of 32%, fixed asset turnover ratio of 2.02x, EBIDTA margins above 25% and PAT margins above 14% indicates how well company has turnaround in last few years.

Strong Labour policy:
Company’s labour policy is down-to-earth. They keep their staff and workers very satisfied so that they can continue working without break in production schedule. For instance, they provide in Surat highly subsidized food three times a day, and workers in any shift are eligible to take all the three meals in any day they are working. Since this is labour intensive industry company makes sure that there is smooth working from labour side for uninterrupted production.

Strong Capex:
Company is in process of expansion of Kosamba plant by importing new machineries and also they have purchased a new textile park in Kalyan – Asmeeta Textile Park. These expansions will help company to increase their production on substantial basis.. With fashion changing as often as possible and buyers showing enhanced interest in novelties, the market for the Orbit Exports products is on the uptrend. They have a diversified product portfolio and will keep on expanding it to meet the growing needs of the customers. Hence company is continuous process to expand to meet increasing demand of customers.

Stock Data

CMP (Rs)
290.25
Face value (Rs)
10
52 Week Range (Rs)
321.85 - 77
Market cap (Rs Crores)
419.50
Price To Book Value (x)
5.30
P/E Ratio (x)
20.09
EV/EBIDTA (x)
15.71

One Year indexed Stock Performance

Orbit Exports LtdSensex
Orbit Exports Ltd
Performance (%)
1m
3m
1year
Absolute
14.66
138.20
187.95
Sensex
0.31
17.89
29.70

Shareholders

(in %)
30-Sep
Promoter
53.07
FII
0
DII
0
Others
46.93
Total
100

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Industry

Indian textiles industry is a well-established with showing strong features and a bright future. In fact, the country is the second biggest textiles manufacturer worldwide, right after China. Similar force is demonstrated in the cotton production and consumption trend where India ranks just after China and USA. The textiles manufacturing businesses a pioneer activity in the Indian manufacturing sector and it has a primordial importance in the economic life of the country, which is still predominantly based on the agro-alimentary sector. Employing around 35 million people, textiles industry stands as a major foreign currency revenue generator and further proves it in its 14% share of industrial production and the 16% of export revenues it generated. Overall, it contributes 4% to India’s GDP.

Textiles industry is not limited to manufacture and export of garments. The success of Indian textiles lies in effective vertical integrations policies which have helped operators in taming the process which while lying beyond simple manufacturing exercise do have a serious impact on it, for example, raw material treatment. Thus, cotton, jute, silk or wool and even synthetic material are also produced by this industry to complement and strength the garments manufacturing industry. Almost one quarter of the world’s spindle activities is hosted in India, again positioning itself just after China. Looming is another important element that accounts for significant account in this industry; in fact, it takes an impressive 61% share including handlooms. The country is also significant textiles fiber and yarn manufacturer on the world scene, taking on its own a 12% share of the world’s production volume. India ranks on the second place as regards in production of silk and cellulose fiber and yarn whilst standing on the fifth position when it comes to synthetic fiber and yarn.

Profile

Orbit exports Limited was incorporated in 1983 and is based in Mumbai, India. The company operates across multiple verticals, from women’s apparel to Christmas crafts and home decor, with further interests in occasion specific fabrics and finished products. In as much the company’s products have always been, and continue to be, entirely original, with respect to creativity and production. This is largely due to the presence of in house design team that is continuously working to uphold the long standing reputation for the quality.

The company is a government recognized Export House engaged and exports its products to south East Asian countries, the Middle East, Europe and North America. It also owns and operates a 0.60 MW capacity turbine generator located in state of Rajasthan.

Profit & Loss Statement:- (Standalone)
(Rs Crores)
Particulars
FY 2012
FY 2013
FY 2014
FY 2015E
FY 2016E
Income:-
  • Net Sales
  • Total Expenditure
  • EBIDTA
  • EBIDTRA Margin (%)
  • Other Income
  • Operating Profit
  • Interest
  • PBDT
  • Depreciation
  • Profit Before Tax
  • Provision for Tax
  • Tax Rate (%)
  • Profit After Tax
  • Adjusted EPS
  • 102.11
  • 86.05
  • 16.06
  • 15.73
  • -
  • 16.06
  • 1.60
  • 14.46
  • 1.88
  • 12.59
  • 3.56
  • 28.31
  • 9.02
  • 7.30
  • 120.95
  • 97.00
  • 23.95
  • 19.80
  • 1.30
  • 25.25
  • 1.70
  • 23.56
  • 2.50
  • 21.05
  • 6.60
  • 31.37
  • 14.45
  • 10.86
  • 137.02
  • 104.88
  • 32.14
  • 23.46
  • 2.24
  • 34.38
  • 2.03
  • 32.35
  • 3.49
  • 28.85
  • 8.85
  • 30.67
  • 20.00
  • 14.44
  • 165.00
  • 122.5
  • 42.5
  • 25.76
  • 2.25
  • 44.75
  • 2.03
  • 42.72
  • 4.5
  • 38.22
  • 11.22
  • 29.36
  • 27.00
  • 19.50
  • 210.00
  • 152.5
  • 57.5
  • 27.38
  • 2.25
  • 59.75
  • 2.03
  • 57.72
  • 5.65
  • 52.07
  • 17.07
  • 32.78
  • 35.00
  • 25.27
Source: Stockaxis Research, Company Data

Valuation

We think at CMP stock is quite attractive as its profitability is set to increase substantially in next 2 years. At the current price of Rs 280, It can easily increase by 60% to target price of Rs 450 trailing at 17.80x to FY 2016E given its growth potential, increasing margins, high ROEs, super-efficient working capital cycle, well diversified client base and good dividend payout.

 
 

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