Cravatex is mainly a trading company. It sells fitness equipment (gym and home exercising) under the “Proline Fitness” brand. It is also the sole distributor of FILA and Dunlop in India. Primary customers are gyms and retail customers.The sector is growing. Health consciousness in growing a lot. Talwalkar’s and Gold’s Gym are growing well. Talkwalkar’s expect to grow 30% in the next 2-3 yrs.
Cravatex has strategic tie-ups with both these chains.
FILA has the lowest market share amongst the established brands of international footwear in India. The market leader is Adidas (including Reebok), followed by Nike & Puma. FILA is just getting into the market and is competitively priced. So, market share is likely to increase provided it can increase its distribution capacity significantly. In the fitness space, the company has 28% of market share.
The promoter holding has been consistent at 75% over a fairly long period.
The company's networth has been steadily rising. From 10.74cr (2002-03) to 30.85 cr (2012).
It has increased its RoE significantly in the last 3 years. This has come mainly from an increase in net margins (probably the FILA brand making its impact felt).
Risks & Concerns
Total debt is 28.14 cr (cons). It has gone up from 17.64 cr (cons) from 2011. D/E is 0.87. It seems to be on the higher side.
Cash flow has been consistently negative over the last 3-4 years.
Valuation
Cashflow is negative so can't really do a DCF analysis.
On EPS estimates, with an assumption of 15% growth for 2013 & 2014, the expected EPS are 36 & 42 for the next 2 years.
Assuming a PE range between 10-15, the optimistic and pessimistic price ranges work out to:-
2013 –> 367 to 551
2014 -> 420 to 630
Conclusion: At CMP (425), the stock price has nearly halved from its high of nearly Rs. 800. The results for Q2 is also likely to be weak and the under-performance for the stock is likely to continue for some more time. On the medium term, however, the stock is priced well enough for adventurous investors to take a bite.
Disclaimer: I am invested in the stock and have a vested interest. Please do your own due diligence before investing.
