Buy Maxwell Industries; target of Rs 76: KRChoksey

KRChoksey's report on Maxwell Industries

"Maxwell Industries has initiated restructuring of business after its demerger with loveable lingerie in 2008-2009. Maxwell Industries plans a product mix of 75:25 innerwear and apparel in FY17E from the current mix of 95:5. A combination of new product launches, foray into women’s wear, phasing out of manufacturing facilities and a renewed focus on garmenting and branding, has led us to believe that the fortunes of Maxwell Industries are set to turn-around. Going forward we believe that following restructuring plans initiated by Maxwell Industries Ltd will help the company to achieve sales of Rs 427 crore & Rs 59 crore of EBITDA in FY17E from revenue Rs 256 crore and EBITDA of Rs 23 crore respectively in FY14."

"We expect overall 483 bps margins improvement in next 3 years with implementation of the following strategies. (1) Entry into apparel, super brand & export segments will improve margins by 100 bps (2) More focus on production planning & distribution will add 150 bps margins (3) Consolidation of warehouses to 3 from 9 and (4) Improve of working capital by 3 days per quarter for next 10 quarter."

"Maxwell Industries has planned a product mix 75:25 innerwear and apparel in FY17E from current mix 95:5. Considering Maxwell’s strong brand strength and entry into high margin apparel segment, the stock is expected to be re-rated. We recommend “BUY” with a Target Price of Rs 76 (EV/ EBITDA 9.5x for FY17E) with a potential upside of 43.40%", says KRChoksey research report.

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