Scripscan:Singer India Ltd
Singer's history:Company started as a distribution company in 80's.In the 90s, started a facility in Sahibabad.It expanded by establishing a new plant in Jammu after that.It then entered into the consumer durable sector.Immense competition and other issues slowly killed the company. The company reported loss of 16crs in 2004.Jammu factory owing to labour problems closed down.Operational losses skyrocketed to over 50crs in late 2000.Networth got fully eroded with over 70crs accumulated loss.BIFR declared it a sick company.In the year 2008,a restructuring plan got unveiled for the revival of Singer India.Steps like adjusting accumulated losses against share capital,infusion of fund by hiking stake of its parent,a one-time settlement with banks,settlement with unsecured creditors and waiving off borrowings from its parent helped singer's to pare down its debt and accumulated losses at a much respectable level .Company then focussed on its core business of sewing machines,changed its strategy from distributor based model to dealer based model which has helped it be a networth positive company.
Story:Just few days back I penned the follow up of La opala which has seen a spectacular rise since my recommendation,moving from 100 to 437 in just a matter of 9 months.La opala was recommended by me not once but twice coz of my high conviction in the business model and prospects of the company.Today's pick is pretty similar to La opala-From domestic consumption to huge market potential of its products.Another interesting point to note would be the fact that just like la opala's product,Singer India too has a place in my home in form of its sewing machine.I was told by my late granny its there for the last 30 years and yet it works as fine as it used to during the initial days.Singer India is all about "Sewing machines".Singer India sells Singer and Merritt brand consumer sewing machines and other sewing related products to distributors and dealers throughout India, through its own small retail network of 25 "Singer" shops in highly attractive locations in India, and through BTI to certain government agencies and to military canteens.I did a lot of research about sewing machines and the company for the past few months.From checking the heavily transacted online shopping sites like Naaptol,ebay India,Homeshop18 to asking my lady mate fraternities who have been recent buyers of Singer's sewing machine to satisfying myself by calling up its dealers,I did it all.The feedback received can be termed fabulous with all vouching for its quality.I made up my mind to recommend it once its out of the "BIFR" sick company zone.It went all the way to 134 in Nov12 but the announcement never came out.This week earlier the announcement finally hit the street which paved the way for me to finally recommend it to you guys.
Present plans:Singer India historically was a retailer of consumer durables, with consumer credit, and an emphasis on sewing machines. Continuing a business started in 1870, Singer India is only one of two multi-nationals with a right to retail, including through company stores, nationwide in India.Singer India's strategy is to continue to grow revenue and profit by increasing market share in the domestic sewing market and by growing the small appliance business, a market segment which Singer India reentered in late 2010(fy11-12 sales contribution 3crs).The Company's product range in this category includes mixer, toaster, electric kettle, chopper, etc.Following its recent exit from BIFR, Singer India may now seek to pursue a new retail initiative with multi-brand, retail stores, offering durables for the home as well as credit and other financial services to Indian consumers.Singer in India has about a 30% share of the organized sewing market in India. The new small appliance line is being sold by Singer India through a separate network of distributors and dealers, as well as through the Singer shops. Sales of sewing products represent almost all of Singer India's sales.Singer India manufactures, through contract arrangements, some of the sewing machines that it sells; sewing machines are also purchased from outside suppliers in India and from SVP.Due to labour problems,the manufacturing facility at Jammu is shut since last eight years.It outsources its entire manufacturing to vendors from Haryana and China.It has nationwide network of 520 dealers with a strong presence in Southtern part of the country..Singer India plans to reopen its own direct manufacturing operation with the goal to satisfy a portion of its own requirements and to export sewing machines to other Singer Asia(its parent) locations and to SVP.Further its very hopeful of commencing production of the jammu unit in the near future.If its able to do that successfully the company would find its stock price totally getting re-rated as that would help it to manufacture self, thereby enhancing margins..
Market size and potential:Even an article in economic times last December caught my attention.It stated,'There is a new addition to the list of proud possessions that young people like to flaunt':"sewing machines".Says Singer India's managing director Rajeev Bajaj: "With technologically advanced machines and tutorials on YouTube, sewing is becoming fun with today's generation".Younger consumers are buying sewing machines to enhance look and value of their garments by adding fashion at home.Social media sites have further helped the younger generation to take interest in these machines where they get live demonstrations.Quintessence about the market size and the potential further enticed me.The age of sewing machine consumers has fallen from 40-60 years to 18 to 35 years now and most of them are urban dwellers.The overall demand for sewing machines currently stands at around 32 lac units.The organized sector is dominated by usha and singer.The organised players are currently seeing nearly double digit volume growth.Interestingly, the sales of home sewing machines have risen from 20,000 units per annum to 1.2 lakh units over the past four years, growing at 40% per annum.On a population of 122crs+ with majority being youth the potential for Singer India is just too huge.There's just no other company to play with as its the lone listed entity.At 80crs of marketcap we get a market leader with 30% market share,a debt free company with a solid brand backing it up and a company which shall grow 22%-25% for the next couple of years.It also generated more than decent positive cash flows for fy11-12.
Conclusion:The stock price is pretty volatile and dances rampantly to the tune of the market.Midcaps are amidst carnage for some unknown reasons.It may not rewrite the scripture of la opala but certainly there's more than a chance of it making a huge northward move once market realizes its potential.If one sees the past recommendation of mine whatever domestic consumption stories got discussed,every single one moved.La opala was a 4 bagger,V-guard and cera became 3 baggers,Wimplast and WPIL more than doubled etc etc.Singer too should provide investors decent capital appreciation in the coming days.Singer posted sales of 156crs and PAT of 10crs(EPS 9.5) in fy11-12.Its just out of BIFR so needs bit of time to chart its growth.Thus, I aint considering the fy13 financials part.I expect it to deliver 15rs earnings for fy14(16crs PAT and 250crs sales).Hard to assign a PE to it in absence of any listed peers.In light of the domestic consumption play hay-days,I value it 10 times on the expected fy14 forward earnings of 15rs to arrive a price target of 150rs.
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