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  • Stock Recommendation | DOLLAR INDUSTRIES LTD (DIL) – BUY – Target Price : 390

    Publish date: NOVEMBER 13, 2018

    DIL Q2FY19 results were ahead of our estimates due to strong volume growth of 20% with Missy and economy segment witnessed strong performance in the quarter while Force Nxt witnessed softness.

    DIL reported better than expected revenue growth of 24% yoy due to robust volume on a low base of last year. The company reported strong volume growth in Missy and economy segment. The company has adopted corrective measures for distribution of various brands and reducing debtors which resulted in 10 days reduction working capital cycle.

    EBITDA margin at 14.9% was ahead of estimates driven by improved gross margins driven by better product mix and higher realization.

    DIL management has maintained guidance for 15% revenue CAGR with15% EBITDA margins over longer period. The company showed confidence in meeting earlier revenue growth guidance of over 12% for FY19E with improvement in EBITDA margins of ~13.5-14%.


    The company is in process of strengthening its internal systems and improving distribution of high value brands. We maintain our EPS estimates for FY19E & FY20E. The stock is trading at PE of 23.6x and 19.6x on FY19E and FY20E EPS of Rs 13 and 15.6, respectively. We maintain our Buy rating on the stock with revised target price of Rs 390 (Vs Rs 437 earlier) valuing at 25x FY20E (vs 28x earlier) based on consolidation in business and increased macroeconomic challenges.


    Net revenue in Q2FY19 grew at strong pace of 24% yoy to Rs 2.4 bn (as against our estimates of Rs 2.2 bn). The company beat our estimates due to strong volume of 40 mn pcs (vs 30 mn pcs on yoy) across brands particularly in Missy and economy segment due to low base of last year and strong performance in the segment, while Big Boss maintained its pace. The company adopting corrective measures for distribution for premium segment has impacted growth in Force NXT. Exports declined due to quarterly variations and would revive in coming quarters. Average realization for high growth brands improved due to better product mix. In H1FY19, 44% revenue contributed by Force NXT, 36.5% by regular, 3% by Force NXT, 8% by Missy, 6% by Force Gowear and 0.5% by Champion. The company is focusing on strengthening its retail presence by increasing presence in modern retail, online, rolling out EBOs on franchisee basis, etc. The company is also focusing on expanding product range in Missy and Bigboss.


    EBITDA for the quarter grew by 24.5% yoy to Rs 362 mn and was ahead of our estimates, with better than expected EBITDA margin at 14.9% (vs our estimates of 12.9%. The strong margin in the quarter was driven by improved gross margins driven by better realization and lower advertisement expenses. In Q2, ad sepnds are normally lower and its increases in Q3. The company has maintained its full year advertisement budget of Rs 860 mn. The company has upgraded guidance for FY19E EBITDA margins to 13.5-14% (Vs 13% guided earlier) and aims to achieve 15% EBITDA margins in the longer run. This will be achieved by its focus towards premiumization, improvement in product mix, improved distribution model, etc. PAT for the quarter grew by 31.3% yoy to Rs 195 mn Vs estimates of Rs 138 mn.


    Working capital declined on yoy by 10 days to 160 days led by reduction in debtors and inventory. The company has adopted strict payment terms against defaulters. Further adoption of corrective measures has also resulted in improved working capital. In addition, the impact of GST also subsided in the system. The company targets to reduce it further by 5-7 days in next 6 months.


    DIL has guided for 15% revenue CAGR with 15% EBITDA margin over a longer period. The company also showed confidence in achieving over 12% growth in revenue in FY19E with higher EBITDA margin guidance of 13.5-14% (Vs earlier guidance of 13%). The company expects that the benefits from strengthening of its system through appointment of consultant would take 4-6 quarters in terms yielding complete results.


    JV with Pepe jeans for innerwear products is operating as per expectations. The team is on board and manufacturing and sales of the products started. The products have initially been launched in southern market and then would further be launched in Western market.

    The company is positive on its new variants of its product being launched in Big Boss and Missy and expects the same to grow at faster pace.

    The company does not require any capex in next few years and would continue to follow asset light strategy by focusing on souring from third party vendors.


    The company is positive on its business in the longer run and aims to grow at 15% CAGR over a longer period with better margins of over 15%. Presently, it is undergoing through transformation phase and is focusing on strengthening of its internal systems through appointment of consultant and improving distribution of high value brands. We have maintained our EPS estimates for FY19E & FY20E based on strong revenue growth and EBITDA margins in Q2FY19.

    The stock is trading at PE of 23.6x and 19.6x on FY19E and FY20E EPS of Rs 13 and 15.6, respectively. We maintain our Buy rating on the stock with revised target price of Rs 390 (Vs Rs 437 earlier). We have valued the stock at 25x FY20E EPS (Vs 28x earlier, due company undergoing through consolidation and current challenging macro environment). At our target price, the stock would be trading at discount to its peers.


    Dollar Industries Limited was promoted by Dindayal Gupta under the name Bhawani Textiles and now has created substantial presence in India under the Dollar umbrella. The company is present across segment in innerwear space with its brands Big Boss, Force NXT, Missy, Champion, Ultra, Force Go Wear, etc. Its brands are also marketed in over 10 countries which includes UAE, Oman, Jordan, Qatar, Kuwait, Bahrain, Yemen, Iraq, Nepal and Sudan. The company manufactures more than 350 products across all innerwear segments. The company’s manufacturing facilities are located at Kolkata, Tirupur, Delhi and Ludhiana. It has fully integrated facility at Tirupur with presence in spinning (400 tonnes per annum), knitting (300 tonnes per annum), dyeing and bleaching (400 tonnes per annum), cutting (0.3 mn pcs per day), elastic manufacturing, stitching and packaging and caters to high end products.


    BUY - We expect the stock to deliver more than 12% returns over the next 12 months
    ACCUMULATE - We expect the stock to deliver 5% - 12% returns over the next 12 months
    REDUCE - We expect the stock to deliver 0% - 5% returns over the next 12 months
    SELL - We expect the stock to deliver negative returns over the next 12 months
    NR - Not Rated. Kotak Securities is not assigning any rating or price target to the stock. The report has been prepared for information purposes only.
    SUBSCRIBE - We advise investor to subscribe to the IPO.
    RS - Rating Suspended. Kotak Securities has suspended the investment rating and price target for this stock, either because there is not a Sufficient fundamental basis for determining, or there are legal, regulatory or policy constraints around publishing, an investment rating or target. The previous investment rating and price target, if any, are no longer in effect for this stock and should not be relied upon.
    NA - Not Available or Not Applicable. The information is not available for display or is not applicable
    NM - Not Meaningful. The information is not meaningful and is therefore excluded.
    NOTE - Our target prices are with a 12-month perspective. Returns stated in the rating scale are our internal benchmark.


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