Basantji - Can you please start a new thread on Zodiac with the below post.

Zodiac Clothing – Niche Premium Branded Retailer and Exporter

Well reputed premium brand for men’s wear operating at the high end of value chain in garment making, branding and retailing.

Design driven and Marketing lead– Company has four design studios – Mumbai, London, Newyork and Dusseldorf. Has capacity of around 8 Million pieces per annum spread acoss 7 plants in India (Bangalore, Umbergaon and Mumbai) and UAE. Complete product range to cover shirting, suiting and accessories (Shirts, Ties, Trousers, Suits, Cufflink, Socks, belts, shoes etc.) for a men’s wardrobe.

Well established brands -  Zodiac (formals), Z3 (Casuals) and Zod (Partywear) in premium segment

Retailing – Has its own retail stores. Count as of June 2009 is 71. Opened 21 new stores in FY09  and 2 new stores in Q1 this year. Contradictory to industry norms, company owns all the stores and don’t follow the traditional franchisee model as they don’t want to share margins. This may have lead to slow growth in rollout of new stores but ensures better margins. 

Sales – Domestic sales contribute 45% of revenue. Mainly done through three channels in domestic market –Multi Branded outlets (40%), Own stores (30%) and retail chain (30%). Exports – To USA, Europe and middle east and contributes 55% of revenues.

Management –Reputed (Noorani’s) and pioneers of branded men’s wear industry in country. Has stellar board consisting of SM Dutta (Former chairman HUL), Deepak Parekh (Chairman HDFC), SR Iyer (Former MD SBI), YP Trivedi (member RIL board).Focused management that has created a highly derisked business model with focus on high margins.

Most Unique aspect about Zodiac which I liked most is that 85% of company’s production is pre sold i.e. the production is based on actual orders which is amazing and derisks business from “stock and sale model” followed by others. This has helped it weather storm of last one year without resorting to discounts as done by its competitors.

Consolidated Financials

	FY06	FY07	FY08	FY09
Sales (Crs)	225.95	271.96	300.85	338.86
PAT (Crs)	13.37	23.78	32.42	24.96
EPS (Rs)	15.9	28.27	38.33	28.28
ROE	13.5	20.23	22.81	15.46
NPM (%)	5.91	8.74	10.77	7.37
Dividend (Rs per share)	5	6	6.5	6.5

 

Company had a forex loss of 14.78 Crores in FY09 due to exchange rates which impacted margins and ROE of FY09. Still managed to grow it’s topline in FY09 by 13% which is commendable considering the global economy situation in FY09. Company has consistently increased its topline, has positive cash flows, debt/equity ratio is 0.16 which sets it apart from other retailers.

Company owns around 1 million shares of shopper’s stop which translates into around 35 Rs / Share of Zodiac at CMP of shoppers stop.

Risks / Concerns

·         Company has a masculine image and doesn’t operate in womes’s and childres’s wear segment.

·         Intense competition in domestic market with brands such as Arrow, Van Heusen, Park Avenue, Louis Phillips etc. in premium segment from Arvind, Madura, Raymonds, Bombay dyeing and heavy discounting by competitors

·         Fast changing design trends

·         Subject to forex fluctuations as reflected in FY09 forex loss of 14 cr

·         Global economic situation and it’s impact on exports and specifically on premium apparels

·         Topline growth has not been spectacular but has been consistently growing. I guess this is due to conservative and prudent management. At the same time bottomline has grown well.

·         Illiquid shares with trading volume of few hundred shares

Future – With the economic conditions improving both in india and globally, things should return to normal which is consistent Sales growth coupled with higher growth in bottomline. Company has plans to increase the retail footprint significantly with plans to open 30 stores p.a. for next 3 years, will benefit from reduced rentals and also will benefit from operating leverage (economies of scale as prodn capacity is only 50~60% utilized) as it expands its retail footprint. Company is well positioned to reap benefits of premium brand, strong balance sheet, conservative management and a high margin business. For FY10 I expect an EPS of around 38 (same as FY08) and an EPS of 45 for FY11.

Disclosures: I have taken a small position and plan to build it further.

Source: Company website and internet.

Originally posted by rohans ok. will do a writeup and put it up in few days. Originally posted by basant I have not seen Zodiac of late! If you have any details please start a new thread. They own some shares of Shoppers Stop though.

ROE is in 20's. It looks safe, stable and steady compounder at CMP with not much downslide. PE rearting will happen if they are able to provide impetus to growth as they now have a well established platform to build on. Also historically the bottomline has grown much faster compared to topline.

Never looked at this counter.

Edited by rakeshmehta48 - 16/Sep/2009 at 8:16pm