Ventura's report on Maxwell Industries
Maxwell Industries (Maxwell) is the manufacturer of the popular VIP brand of inner wear. Unlike its peers operating in the lucrative innerwear industry, Maxwell has not grown in size in the past ten years. Its foray into the capital intensive spinning segment diverted resources from its core business of garmenting, thereby stunting growth.
However, the company is now undertaking an all-round restructuring to kick-start the growth engine. This includes:
Structuring brands into separate Strategic Business Units (SBUs) which will help maximize the potential of each of its brand Thrust on new brand launches (VIP Signature Collections), expansion of product portfolio (thermal wear and sports wear) and expansion in womens wear under the brand Feelings to drive growth Phasing out non-core facilities sold of its spinning facility in 2011 & processing unit in Navi Mumbai in 2014. Processing unit in Tamil Nadu and knitting unit in Daman are due for sale. Sale of these units validates the companys efforts to move from an in-house production model to an outsourced one.
This renewed focus on garmenting and branding, leads us to believe that the fortunes of Maxwell Industries are set to turn-around. We expect Maxwell to report a three year revenue CAGR of 18% to Rs 422 crore by FY17. We expect PAT to increase at a 3 year CAGR of 85% to Rs 34 crore in FY17 and the company to report an EPS of Rs 5.3 in FY17.
We initiate coverage on Maxwell Industries as a BUY with a Price Objective of Rs 63 representing a potential upside of ~135% over a period of 24 months. The target price is arrived at by assigning a PE multiple of 12x on FY17 EPS of Rs 5.1. At the CMP of Rs27, the stock is trading at a PE multiple of 5.1x FY17E. We expect the stock to re-rate with improvement in financial performance post the re-structuring", says Ventura research report.
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