Maxwell Industries - Focus on innerwear showing results - Karvy

Maxwell Industries sales, EBITDA and net income grew by 24%, 9% and 122% YoY respectively.

Revenue Growth: The Company's top-line grew 23.9% YoY to Rs. 756 mn during Q2FY13, while sequential growth was reported at 28.8%. The top-line growth was on the back of 16% YoY volume growth as well as realization hike of approx. 3%. The Company's decision to focus on innerwear and closing spinning business is showing better results. The Company is increasingly focused on introducing new product lines under Eminence & VIP brands to establish itself as a premium innerwear manufacturer. This would further help to improve operating margins on higher realizations.

Operating margins: The Company's EBITDA grew 8.7% YoY to Rs. 60.2 mn during Q2FY13 on account of higher raw-material and other input costs. EBITDA margin for the quarter stood at 8.0% which declined 111 bps YoY and 95 bps QoQ. Advertisement expenses were up by 4x YoY to Rs. 39.9 mn for Q2FY13. The Company aims to incur Rs. 100 mn in advertisement for FY13, out of which Rs. 65.1 mn were incurred during H1FY13. Therefore better operating margins are expected for H2FY13 on lower advt. expenses and better realizations.

Net income shot up on revenue growth: Net Income for Q2FY13 grew 122.4% YoY to Rs. 14.5mn on the back of higher top-line growth. On sequential basis, net income was up by 41.6%.

We revised up our expected Sales by 8.1% and 11.2% for FY13E and FY14E respectively & EBITDA up marginally by 0.4% and 3.7% for FY13E and FY14E respectively. Expected Net Income has been revised down by 3.5% and 0.1% for FY13E and FY14E respectively.

Outlook & Valuations

We expect the Company to be in positive net earnings by FY13E and revenues to grow at a CAGR of 20% over FY12-FY14E. At CMP of Rs. 26 per share, the stock trades at 13x FY14E earnings and 7.1x FY14E EV/EBITDA. We maintain our target price of Rs. 26 per share and downgrade our recommendation to "HOLD" as target price achieved.

Source : Equity Bulls

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