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Maral Overseas Stock Analysis | Long Term Outlook and Future Prospects

HomeMaral Overseas Stock Analysis | Long Term Outlook and Future Prospects

Stock of the Month (October 2013) – Maral Overseas

23 October, 2013

Price: Rs. 17.45

This Stock Analysis report presents a long term outlook and the future prospects of Maral Overseas Limited.

Maral Overseas (“Maral” or “Company”) is among the largest vertically integrated textile companies in India. The Company is constantly diversifying and upgrading its products to benefit from the growth in the Indian textile sector. Set up in 1991, the Company today has a market capitalization of Rs. 48.15 Cr. Its two ultra modern manufacturing units [District Khargone and Noida] can produce 1,500 tons of grey yarn, 115 tons of dyed yarn, 400 tons of dyed knitted fabric and 4,00,000 pieces of garments every month.

INVESTMENT RATIONALE

Financial Position

During FY 2013, the Company achieved a turnover of Rs. 558.89 Cr. against Rs. 535.91 Cr. in the previous year. For FY 2013, the yarn business accounts for 61.27 % (previous 62.29 %) while knitted fabric and textile made-ups business accounts for 24.65 % (previous 24.73 %) and 14.08 % (previous 12.88 %) respectively [of the total revenue].

Yarn Business: The performance of the Yarn Business has contributed significantly in the performance and profitability of the Maral Overseas during the year mostly catered by the stability in the global prices of cotton and yarn. This business contributed Rs. 335.01 Crores towards the turnover of the Company.

Knitted Fabric Business: The performance of the Fabric Business was not in line with the overall performance of the Company. The Management is taking various steps to fix the gaps so that the present favourable market sentiments be utilized on the fabric front also. This business contributed Rs. 125.33 Crores towards the turnover of the Company.

Garment Business: TThe performance of the Garment Business was satisfactory and continued to contribute in the profitability of the Company, catered by improved capacity utilization, operational performance and rationalization of customer & product profile. This business contributed Rs. 98.55 Crores towards the turnover of the Company.

Competitive Cost Advantage

Maral Overseas Stock Analysis

The global textile buyers consider India as one of the major sourcing destination. Textile Companies in India are competitively placed vis-a- vis other global destinations. Foreign companies have been attracted to Indian market for two major considerations. First, Indian textile sector is one of the largest in the world. The premium consumption segment has been expanding significantly over the years and this has drawn the focus of foreign players. Secondly, foreign companies use India as a low cost production base for exports. The Government of India has also promoted a number of export promotion policies for the textile sector in the Union Budget 2013-14.

 Various Government Initiatives to open up new markets for the textile sector

The Government of India has identified the future prospects of the textile sector in the overall growth of the Indian economy. The Union Budget 2013 has proposed to do away with excise duty on cotton and manmade sector (spun yarn). This would be a big positive mainly for Indian textile companies like Maral Overseas in long term. The Government has also signed MOUs with various Foreign governments such as Mauritius, Uzbekistan, Israel, Australia etc. to explore possibilities for enhanced cooperation and development which will further help the Indian textile companies to expand.

INVESTMENT CONCERNS
 
Caveat: 48.03 % of the 74.95% of total promoter holding is pledged.

Tough economic environment and Competition from Low Cost Producers

For past many months India has been suffering from a high rate of inflation with the general level of prices for commodities and raw materials rising at an alarming rate. Raw-cotton is the major raw material for the textile sector. It accounts for around 65 % of the cost of production and has significant impact on operational performance. This will put incredible pressure on margins of the Company. The global volatility in the cotton prices has become one of the biggest variable factors in the textile sector impacting realizations and profitability.

Neighbouring countries like China, Indonesia, Vietnam, Pakistan, Bangladesh etc. have emerged as low cost producers and are giving intense competition to the players of the Indian textile sector.

The Indian textile sector is highly dependent on export and earns a major portion of its revenue from exports. About 27% of the foreign exchange earnings in India are through textiles. The excessive dependence on export makes the Company vulnerable to global developments. Movement of Indian rupee vis-a-vis other currencies such as US Dollar and Euro is important as it has a direct impact on exports realization and import cost.

About the Author

Rajat Sharma pictureRajat Sharma is a well known stock market analyst and commentator. He has covered Indian markets for over a decade and is regarded for consistently identifying early stage investment opportunities. Attorney by qualification, Rajat has done extensive work for improving corporate governance and disclosure standards.