SP Apparels Ltd - Research Report


Private Client Research






SP Apparels Ltd

Reco Price
Rs. 410.00
Price Target (1.5 - 2 Years)
Rs. 820.00


February 08, 2017
CNX Nifty




Capacity expansion and backward integration will spiral its earnings growth backed by de-leveraging balance sheet will be the key triggers for the company.

Backward Integration can lead to expansion in margins:
Via its Rs. 415 crores IPO, S. P. Apparels Ltd. (SPAL) plans to utilize Rs. 75 crores for expansion and modernization of its manufacturing facilities. This would reduce their costs and dependency on third party for their processes. The backward integration activities undertaken by company are

1. Enhancing spinning capacit
2. Setting up new knitting unit

These activities would expand the company’s margins by 300-450 bps, which would make them more competitive than their peers. The company uses a combination of in-house manufacturing and out-sourcing of the spinning capacity to meet its requirements of greige yarn. Also Rs. 63 crores has been used to pay off the debt, which would lead to an expansion in bottom line as there would be savings worth Rs. 8-10 crores in terms of the interest cost.

Expanding capacity to tap US markets:
S. P. Apparels Ltd. is planning to expand it sewing capacity (children wear) by 2000 machines and is taking the total machine count to 5200 by FY19. However, the primary target for the company is to enter US markets as the capacity constraint issue was blocking the growth of company. They have already set up 200+ sewing machines (out of the planned 2000) in their current facility so as to make them eligible to bid for new orders. In totality, the company plans to take the number of basic machinery to 3620 by end of FY17. According to the past trends, the company has managed revenues worth Rs 15 lakh per machine in FY16. Assuming the same revenue per machine going forward, with 3620 the company would be able to generate revenues worth of Rs 543 crores in FY17E, which translates to a 19% growth compared to the previous year.

“Crocodile” franchisee would start profits post 70 stores:
SPAL is an exclusive licensee of the “Crocodile” brand garments for the manufacture, distribution and marketing of the said brand, in India. The company generates revenues of Rs. 34.5 crores via “Crocodile” garments, out of which 50% comes from MBO, which is already profitable. The remaining 50% comes from Exclusive stores, where SPAL owns and operates 40 stores, whose overhead cost is not making it profitable. With the recent IPO proceeds, they plan to open 70 new stores in 2 years. With the current overhead costs and generating the same current revenue per store, the company would turn profitable by opening the additional 30 stores.

Premier global clientele in terms of top 5 children wear companies:
The company has marquee clients in the international market and has been associated with them since many years now. As at end of FY16, 86% of the revenue came from these top 5 clients, which includes Tesco, ASDA (Walmart subsidiary), Primark, Mothercare UK and Dunnes Stores (Bangor). Companies involved into manufacturing for US and European market requires expertise as these countries follow strict norms in terms of quality and chemicals used, and this creates a barrier for a new entrant. SPAL here would face fewer difficulties with its new capacity coming up, complemented by China losing to its competition, making India its next best supplier simply due to its sheer size.

Stock Data

CMP (Rs)
Face value (Rs)
52 Week Range (Rs)
422.20 - 265.00
Market cap (Rs Crores)
Price To Book Value (x)
P/E Ratio (x)

One Year indexed Stock Performance

SP Apparels LtdSensex
SP Apparels Ltd
Return (%)


(in %)

+91 22 6639 3000



The global children-wear market was of $228 billion in 2014, out of which around 20% was contributed by infant and toddler apparels (0 to 3 years) and 80% by other children apparel (4 to 14 years). While the market has grown at a CAGR of 4.8% between 2009 and 2014, owing to improving global economic outlook the growth rate is expected to increase to a CAGR of 5.6% between 2014 and 2019 to reach a value of $300 billion in 2019. Indian market is dominated by Kitex garments with capacity of 150 million pieces per annum vs SPAL having capacity of 50 million pieces in the same duration.


S. P. Apparels Ltd. is a manufacturer and exporter of knitted garments for infants and children’s wear in India. It is the 2nd largest manufacturer in India and 4th largest in world followed by Wingloo (China), Gimmell (Singapore), Kitex (India) etc. Unlike other large players, who are into manufacturing of basic wear, S. P. Apparels focuses largely on fashionable wear (85% of volume). Company as of now is catering to customers like TESCO, PRIMARK etc and have been supplying them since 2 decades now. Company is also into retail business where they sell menswear under the brand “Crocodile”.

Profit & Loss Statement:- (Consolidated)
(Rs Crores)
  • Net Sales
  • Growth (%)
  • Total Expenditure
  • % Margin
  • Other Income
  • Operating Profit
  • Interest
  • PBDT
  • Depreciation
  • Profit Before Taxation & Exceptional Items
  • Exceptional Income / Expenses
  • Tax
  • Profit After Tax
  • Share of Associates
  • Consolidated Net Profit
  • Adjusted EPS
  • 452.10
  • 5%
  • 387.70
  • 64.40
  • 14.2%
  • 1.20
  • 65.60
  • 35.60
  • 30.00
  • 17.50
  • 12.50
  • 0.00
  • 5.40
  • 7.10
  • 0.00
  • 7.10
  • 4.30
  • 475.80
  • 5%
  • 406.10
  • 69.70
  • 14.6%
  • 6.70
  • 76.40
  • 31.20
  • 45.20
  • 19.70
  • 25.50
  • 0.00
  • 14.60
  • 10.90
  • 0.00
  • 10.90
  • 6.50
  • 536.90
  • 13%
  • 447.70
  • 89.20
  • 16.6%
  • 4.90
  • 94.10
  • 25.20
  • 68.90
  • 20.70
  • 48.20
  • 0.00
  • 10.80
  • 37.40
  • 0.00
  • 37.40
  • 21.80
  • 650.67
  • 21%
  • 532.37
  • 118.30
  • 18.2%
  • 0.50
  • 118.80
  • 20.00
  • 98.80
  • 23.00
  • 75.80
  • 0.00
  • 19.70
  • 56.10
  • 0.00
  • 56.10
  • 22.30
  • 805.59
  • 24%
  • 650.49
  • 155.10
  • 19.3%
  • 0.50
  • 155.60
  • 17.00
  • 138.60
  • 27.50
  • 111.10
  • 0.00
  • 33.30
  • 77.80
  • 0.00
  • 77.80
  • 30.90
Source: Stockaxis Research, Company Data


SPAL being the 2nd biggest company in terms of capacity in India have an edge over others for his experience of manufacturing fashion wear.

At CMP of Rs 410, the stock is trading at a multiple of 13.2x FY2018E, we believe the company would be able to spiral its earnings upwards at higher pace then its topline. Hence, we recommend it buy with a target price of Rs 820.



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