Arex Industries : Buy at CMP of 41 Target price of 65 in 1-2 year time

About Company: Arex was founded in 1989 by a young technocrat, Mr. Dinesh Bilgi, based on his weaving expertise and knowledge. What began with just 12 team members and four conventional shuttle looms; has metamorphosed into a US $6.0 million company with a net worth of US $3.6 million within a decade, patronized by its ever valued clients.

Today, Arex is a 120 plus family of professionals and technocrats. Arex cater to the fluctuating demands of image-conscious brands around the world. Sales have crossed US $2.25 million, and the demand curve is on a steady rise. Arex provides 414 million Woven Labels annually, in response to vastly diverse client requirements. These labels can be Satin or Taffeta quality in White or Black warp-base, upto a width of 500 MM and 12 Colours.

Financial Performance: Company has grown in last 3 years by 30% with continuous improvement in margin mainly due to decreasing depreciation and reduction in finance cost.

(INR Crores.)	2015	2014	2013	2012	2011
Revenue	33.04	31.69	25.98	21.93	25.06
Other Income	0.08	0.09	0.04	0.13	0.02
Total Income	33.11	31.78	26.02	22.06	25.08
Expenditure	-25.22	-23.37	-19.17	-15.63	-15.48
Interest	-0.77	-1.07	-1.38	-1.58	-1.73
PBDT	7.13	7.34	5.47	4.86	7.87
Depreciation	-3.13	-4.05	-4.44	-4.83	-5.63
PBT	3.99	3.29	1.04	0.03	2.25
Tax	-1.31	-1.1	-0.32	0.34	-0.69
Net Profit	2.69	2.2	0.71	0.37	1.55
Equity	3.96	3.96	3.96	3.96	3.96
EPS	6.79	5.55	1.8	0.93	3.93
CEPS	14.7	15.78	13.01	13.12	18.13
OPM %	23.89	26.54	26.37	29.35	38.3
NPM %	8.13	6.93	2.75	1.68	6.2

 

Future Outlook: Company is into very interesting business space of labels having many Indian and international customers. These labels are brand identification of any product and are valued by manufacturer. With increasing in pace of changing fashion the market is flooded with lot of brands thus future business looks promising.

Company has delivered an EPS OF 6.79 in year 14-15 A thanks to decrease in depreciation the NP margin has increased by 15%.

Dividend: Company has been declaring dividend on regular basis every year for last 5 year. This year it has declared Dividend of 9%.Company is bit conservative in declaring dividend major reason for lower dividend could be debt. Going forward in next 1-2 year the company can become almost debt free this should increase PE multiple of stock price.

Going forward I expect company to achieve turnover of 35 crores in 15-16 and could result in Net profit of 3 crores which would result in EPS of approx. 8 .With conservative multiple of 8 stock could touch Rs 65. In 1-2 year time frame.

Recommendation: Buy at CMP of 40-41 or less for  Target price Rs 65 Period ( 1-2 year)

 

Visit : www.arex.co.in