Cravatex - Strategic partnerships to be key driver - Angel Broking

Cravatex reported a marginally higher top-line of Rs.56cr yoy on a consolidated basis, vis-à-vis our estimate of Rs.70cr. On the operating front the EBITDA grew by 10% yoy to Rs.5.4cr. Other expenses as a percentage of sales reduced by 406bps which were offset by a total 334bps increase in raw material and employee cost as a percentage of sales, thus leading to expansion of EBITDA margin by 53bps to 9.6%. The company reported a bottom-line of Rs.2.9cr, lower by 5.4%, yoy vis-àvis our estimate of Rs.2.1cr.

FILA's extended agreement & other strategic partnerships to drive growth: Cravatex represents FILA in India and distributes its products under the license agreement which has been further extended for 30 years starting from January 2013. The license permits the distribution of FILA products and use of its trademark in India, Bangladesh, Pakistan, Sri Lanka, Nepal and Bhutan thereby broadening its presence. 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. Moreover, Cravatex has signed two new exclusive fitness equipment distribution agreements with Polar Electro OY (Finland) and Miha Body Tec (Germany). The company continues to provide high-quality equipment and customer service to reputed health club chains such as Talwalkars and Gold Gym.

Outlook and valuation: On the back of above developments, Cravatex' net revenue is expected to grow at CAGR of 12.2% over FY2012-14E to Rs.308cr. The EBITDA is expected to be Rs.23cr in while margin is to revive at 7.3% in FY2014E. The net profit is to post a CAGR of 9.8%, to Rs.12cr in FY2014E. At the current market price of Rs.456, the stock is trading at an attractive valuation of 10.0x for FY2014E earnings. We maintain our Buy recommendation on the stock with a revised target price of Rs.545 based on target PE of 12x for FY2014E earnings.

Source : Equity Bulls

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