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Research
Buy Cravatex - Angel Broking
Posted On : 2012-05-17 11:21:02( TIMEZONE : IST )
Cravatex Ltd. (Cravatex) is a market leader in providing fitness equipment distribution under its brand Proline Fitness and represents the 100-year old Italian brand, FILA, in India. Cravatex has recently acquired sub-license to distribute the products of FILA in the United Kingdom (UK) and Ireland. The company has also been forming strategic partnerships with various health club chains in India such as Talwalkars and Gold Gym in the fitness equipment segment. Cravatex is trading at an attractive 9.8x PE and 0.5x EV/Sales on FY2014E. We recommend Buy on Cravatex with a target price of Rs.800, based on target PE of 12x and implied EV/Sales of 0.6x for FY2014E.
Investment rationale
Strategic partnership and organic growth to drive 45% growth
Owing to robust organic growth and strategic partnerships the net revenue for the fitness equipment segment is expected to grow at 45% CAGR over FY2011-14E. Cravatex is a market leader in fitness equipment distribution and operates through a wide network of 51 retail stores across India. The company has recently entered into strategic partnership with reputed health club chains in India such as Talwalkars and Gold Gym to provide them with high-quality equipment and customer service.
Sportswear segment to grow at 67% CAGR
On the back of acquisition of subsidiary, M/s BB (UK) Ltd, Cravatex aims to acquire sub-license for certain distribution channels for FILA in the UK and Ireland. The subsidiary will design, develop and supply FILA apparel to other markets in Europe. The acquisition is expected to deliver potential annual revenue of around £10mn for the next two years. Overall revenue from the sportswear segment is therefore expected to grow at CAGR of 67% over FY2011-14E.
Strong parentage of FILA
FILA is a 100-year old Italian sportswear brand with a strong parentage in sports apparel, sports accessories and sports footwear industry. The brand plans to set up 60-70 stores across India by 2014. FILA has plans to be present in almost all large retail formats such as Shoppers Stop, Westside and Lifestyle. Kim Clijsters, US open singles champion is the brand ambassador for FILA.
Outlook and valuation
Cravatex' net revenue is expected to grow at a 58% CAGR over FY2011-14E. EBITDA for the company is expected to grow from Rs.6.9cr in FY2011 to Rs.21cr in FY2014E, at a 45% CAGR. Net profit of the company is expected to grow from Rs.6.4cr in FY2011 to Rs.17.2cr in FY2014E. At the CMP of Rs.655, the stock is trading at PE of 9.8x and EV/Sales of 0.5x of FY2014E. We recommend Buy on Cravatex with a target price of Rs.800, offering an upside of 22% from current levels.
