Cravatex - 1QFY2013 Result Update - Angel Broking

Cravatex Ltd (Cravatex) reported a poor set of numbers for 1QFY2013. Its top-line came in 30.8% higher at Rs.57cr, in line with our estimate of Rs.59cr. The rise in the top-line was on account of a healthy growth of 60% in domestic sales which compensated for the revenue dip of 37% from the international segment. The EBITDA for the quarter dipped marginally by 0.8% yoy and came in at Rs.2.7cr, lower than our estimate of Rs.3cr. Operating margin contracted by 149bp mainly on account of 99bp yoy increase in other expenses. Consequently, the net profit for the quarter was lower by 15% yoy at Rs.1.6cr, against our estimates of Rs.2.4cr.

Strategic partnerships & FILA's strong parentage to drive growth: Cravatex has recently signed two new exclusive fitness equipment distribution agreements with Polar Electro OY (Finland) and Miha Body Tec (Germany). It has also further extended its distribution agreement with Johnson till 2025. The company continues to provide high-quality equipment and customer service to reputed health club chains such as Talwalkars and Gold's Gym. It continues to broaden its presence in India, UK, Ireland and Europe through FILA, a 100-year old Italian sportswear brand. FILA plans to set up 60-70 stores across India by 2014 and be present in almost all large retail formats such as Shoppers Stop, Westside and Lifestyle.

Outlook and valuation: On the back of the above developments, Cravatex' net revenue is expected to grow at a CAGR of 18.9% over FY2012-14E to Rs.340cr. The EBITDA is expected to be Rs.20cr while the margin is expected to rebound to 6% in FY2014E. The net profit is to post a CAGR of 26% to Rs.15cr in FY2014E. At the current market price of Rs.507, the stock is trading at an attractive valuation of 8.9x PE FY2014E earnings. We continue to recommend Buy on Cravatex with a revised target price of Rs.682 based on a target PE of 12x for FY2014E.

Source : Equity Bulls

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