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com
This is not a buy or sell recommendation. We are in the process of compiling data
sheets of companies that we track / own so that in future we may use these for buying /
selling stocks of such companies. Reason for sharing is hopefully somebody who has
more information / insight may get in touch with us or for a healthy debate.



Premco Global

Date : 28-Aug-14
Traded In : BSE B (530331)
Face Value : 10
CMP : 114.70
EPS (TTM) : 20.23
P/E : 5.67
Market Cap : 38.27 Cr
52 Week H/L : 124.45 / 23.25
Website : http://www.premcoglobal.com

Since our last note on Premco Global, the stock has nearly tripled. In spite of the
excellent performance of the company the liquidity of the stock is a very big risk. At
times the stock is not even traded in BSE. The normal volumes is in the range of 2000-
4000 shares per day

Prev note on Premco http://www.scribd.com/doc/207256625/Premco-Global


Profile

Premco Global is a manufacturer of Woven and Knit Elastic and Non-Elastic Narrow
Fabric, Tape and Webbing for use in the Apparel, Lingerie, Sports-related, Medical,
Footwear, Luggage, Furnishing and Automotive industries.

The company has 4 manufacturing units at

Palghar, Maharastra
Dadra & Nagar Haveli, UT
Mumbai, Maharastra
Vapi, Gujarat







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Clients



Products

Elastic narrow fabrics are an important input to the undergarment industry. They are also
used in other garments i.e. shorts, jackets and skirts, moulded luggage, baby diapers,
sports goods, medical goods, etc.

Elastic narrow fabrics are made from an elastomeric yarn and yarns made from cotton,
polyester and nylon. More than 3000 different varieties of elastic fabrics are
manufactured however, based on manufacturing technology they can be classified as
woven and knitted. The fabric is expected to have the following properties:-

Stretch ability
Shrink resistance
Durability to regular wash
Soft feel

Knitted elastic tapes are generally available in widths 8 mm, 12 mm, 20 mm and 25 mm.
Woven elastic tapes range in widths 25 mm, 32 mm and 38 mm. These elastic tapes are
primarily used for undergarments. The narrow fabric is made with or without logo along
the length depending on customers requirement.

Premco Global product showcase



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Raw-materials

Elastic narrow fabrics are made from heat resistant latex thread generally referred to as
Rubber thread or heat resistance spandex yarn. This yarn is woven or knitted along with
yarns of polyester, nylon or cotton. Polyester yarn of 150 deniers and nylon yarn of 210
denier are used for the purpose.

P&L




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Balance Sheet






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Cash Flow


The cash from operating activities has considerably improved from last year


Src: ARs
Receivables are better than last year

Quarterly Results





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Key Ratios


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Exports





Capacity Expansion








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Management compensation




Dividends





Shareholding Pattern


Dec 2013 - Issue of 1,50,000 equity shares on preferential basis to the promoters

Dec 2012 - Issue of 1,50,000 equity shares on preferential basis to Suresh B Harajni,
one of the promoters of the company at a price of Rs 28 per share aggregating to Rs 42
lakh

Promoter shares are not pledged










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Realization cost table






Premco seem to have pricing power for its product irrespective of the raw material
pricing. For the last 2 years the per metre realization price took a hit. Since the sales had
a major jump for the last 2 years, maybe they had to take a compromise on the pricing.

















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Investor Returns




Src: http://www.motilaloswal.com/


SWOT Analysis

Strengths

Premcos financial record and ratios for the last 2 years are stellar
Even though the product is a commodity, they are able to get realizations
Company paying dividends for the past 8 years
Exports growth

Weakness

Very small market cap [Mkt perception]
Low volumes of share traded

Opportunities

Very small market cap
With the inner wear market moving towards branded goods, the sales of Premco
will be in a better position
Export market potential


Threats

Receivables aging
Was the June qtr result just an aberration?






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Concerns

Mumbai plant performance


















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Capital intensive business?



Looks like Premco Global is a working capital intensive business. We decided to
compare its intensity with other business in textiles / similar business.


Net sales from operations

It seems that the smaller companies do have a higher working capital requirement and
when we look at that universe Premco Global does not seem to do badly.






Valuation


Mcap Rs 38 Crores

Let us assume my rich uncle has around Rs 38 crores to spend. Let us see if Premco
would be a good business for him. He manages to buy out the entire company by
buying all the shares.







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As of 31 Mar 2014

Rs Cr

LT Borrowing 0.92
Deferred tax liabilities 1.84
Other LT liabilities 0.56
LT prov 0.61
Non Current Liabilities 3.93

ST Borrowing 4.35
Trade Payables 3.17
Other Curr Liabilities 1.83
ST Provision 2.74
Current Liabilities 12.09

Total Liabilities 16.02



Inventories 10.85
Trade Receivables 11.39
Total 22.24

Now theoretically my uncle wants to settle all the liabilities. Even though the Inventories
and Trade Receivables are around Rs 22 Crores, we assume we get only Rs 16,02
Crores (assumption that some ppl will not pay for the goods and that some goods we are
not able to sell). So using the Rs 16.02 Crores of the receivables and inventories he
settles all the liabilities of the company.

Now my uncle is left with the following

Noncurrent investments 4.44
Cash 1.7
Other Current assets 0.86
7

The Other Current Assets is actually about Rs 2.57 Crore of which around Rs 2.32 Cr is
Duty draw back receivables. We discount Other Current Assets to Rs .86 Crore. Now
my Uncle pockets the Rs 7 Crores. Thus effectively he has paid only Rs 31 Cr for buying
the business. He is also left with the business and the below

Not Considered
LT loans and advances 0.66
Other Non Current assets 0.31
ST loans and advances 0.17
Fixed Assets 12.68

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The management has said they are looking at 20% growth this year but let us assume
the company does the same business as last year and it is stagnant. Thus my Uncle is
left with a business that is generating around Rs 8 Crores annually.

Let us assume my Uncle was lucky as me and he got the shares at the same time I had
bought them (around Rs 33 CMP). The mcap then was around Rs 11 Crore. So using
the above logic, he would be lucky to have a bought a business for Rs 4 Crore which is
generating Rs 8 Crore annually.

The above is practically impossible and just was used to figure if Premco as a business
has value.


My Strategy

I am actually in a cross road of deciding whether I should sell some shares and make
the rest FOC (Free of Cost) or hold the shares without selling


Some historical data of Premco Global


Sales in Rs Cr









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Net Profit in Rs Cr




























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Src AR
Book Value = Networth / No of Shares

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References

1. www.bseindia.com
2. www.premcoglobal.com
3. www.moneycontrol.com
4. www.screener.in



Disclaimer

General: This report is not a buy / sell recommendation. Buying stocks must be done
after careful analysis and the above report can be used as a base for the analysis and
should not be used as sole basis.

Vested Interest: The author has bought the above mentioned stock at an average price
of ` 33. He may purchase / sell the same in the future in the short or long term based on
his conviction and his financial situation.

Data Validity: The data is collated from various sites in the internet. Even though we
have tried our best, there may be discrepancy due to human error while collating the
data. The author should not be held responsible for such mistakes. The data can be
looked up at various websites given in the reference section.

Valuation: The author is not an expert and his valuation may be off the mark.