Virat Industries Ltd., the company that is definitely not the size the name signifies, however, is doing rather well in the area of its operations. The company has chosen a very limited area of operation and is well focused on achieving significant heights in the same. Virat Industries Ltd. is basically a socks manufacturing company, with 97-98% of its revenues coming from exports.
Since inception the company has focused on export markets because export clients offer large size orders, which result in better plant efficiency, improvement in quality and better management of raw materials inventory for the company. Although it is difficult to ascertain the quality of overseas clients of the company such as John Lewis, House of Fraser, TK Maxx, Next, Fatface in the UK, Migros in Switzerland and Shoe Mart in the Middle East, but their Indian counterparts definitely have a good name such as Levis, Dockers etc.
During 2008-09, we all know that how the export oriented companies suffered at the hands of recession, with textile companies being evenly more badly hurt. However, in the case of Virat, the inflow of orders remained encouraging throughout the year, and export dispatches in turn of quantity of pairs of socks were 22% higher, compared to FY 2007-08. An argument against it can be that the company could outperform on account of low base factor, but be whatever the reason, any good performance is always welcome, and as we have already mentioned in our previous article that small companies do enjoy the benefits of adaptability.
Speaking on the performance, VIL has been a steady performer. It has grown from a Rs 5.29 crore sales turnover company in the year 2005 to Rs 13.80 crore at the end of Mar'09. That's a consistent performance at CAGR of around 28%. The good thing about the performance of the company has been that they have been enjoying some operational leverage and have continuously scaled up their margins.
While in the year 2005 they could enjoy a NPM of just 6.8%, the latest data reveals the fact that the margins have improved by almost 100% over the 4 years with the company enjoying the NPM at 13%. What this has done is that it has resulted into bottom-line growth at CAGR of 50%, over the last 4 years. The management has even paid off some portion of their debt during FY 2008-09. This is because their debt portion has come down from Rs 2.59 crore at the end of Mar'08 to Rs 1.80 crore.
So, considering the facts that the company has been enjoying good flow of export orders, good dividend payout, reasonable valuations at a multiple of around 3.8, low debt, focused operations make VIL a company definitely worth looking at in the penny stock space for medium term gains. But, one cannot take a long term view as there lies the concern with respect to scalability and how rapidly that can be done, because there are numerous players that operate in the un-organized space.
Since inception the company has focused on export markets because export clients offer large size orders, which result in better plant efficiency, improvement in quality and better management of raw materials inventory for the company. Although it is difficult to ascertain the quality of overseas clients of the company such as John Lewis, House of Fraser, TK Maxx, Next, Fatface in the UK, Migros in Switzerland and Shoe Mart in the Middle East, but their Indian counterparts definitely have a good name such as Levis, Dockers etc.
During 2008-09, we all know that how the export oriented companies suffered at the hands of recession, with textile companies being evenly more badly hurt. However, in the case of Virat, the inflow of orders remained encouraging throughout the year, and export dispatches in turn of quantity of pairs of socks were 22% higher, compared to FY 2007-08. An argument against it can be that the company could outperform on account of low base factor, but be whatever the reason, any good performance is always welcome, and as we have already mentioned in our previous article that small companies do enjoy the benefits of adaptability.
Speaking on the performance, VIL has been a steady performer. It has grown from a Rs 5.29 crore sales turnover company in the year 2005 to Rs 13.80 crore at the end of Mar'09. That's a consistent performance at CAGR of around 28%. The good thing about the performance of the company has been that they have been enjoying some operational leverage and have continuously scaled up their margins.
While in the year 2005 they could enjoy a NPM of just 6.8%, the latest data reveals the fact that the margins have improved by almost 100% over the 4 years with the company enjoying the NPM at 13%. What this has done is that it has resulted into bottom-line growth at CAGR of 50%, over the last 4 years. The management has even paid off some portion of their debt during FY 2008-09. This is because their debt portion has come down from Rs 2.59 crore at the end of Mar'08 to Rs 1.80 crore.
So, considering the facts that the company has been enjoying good flow of export orders, good dividend payout, reasonable valuations at a multiple of around 3.8, low debt, focused operations make VIL a company definitely worth looking at in the penny stock space for medium term gains. But, one cannot take a long term view as there lies the concern with respect to scalability and how rapidly that can be done, because there are numerous players that operate in the un-organized space.
Note: The stocks discussed at MPS thru blog postings are neither a part of “Business Insights” issue nor a “Penny Stocks” which we reco/publish for paid subscribers. These are just stock specific views by MPS team; one MUST do the due diligence before doing any investment based on our reco.
To contact the Lead Associate on this story: Ekansh Mittal in Noida (New Delhi) at Ekansh@hbjcapital.com
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