Printed From: The Equity Desk
Category: Investment Ideas - Creating winning portfolios!
Forum Name: Value buys - The intrinsic value is close to market price
Forum Discription: Companies that sit on a large amount of cash or investments or land bank plays or having high dividend yield can be categorised under this segment. These companies have lower downside risks
URL: http://www.theequitydesk.com/forum/forum_posts.asp?TID=122 Printed Date: 19/Apr/2025 at 9:22pm
Topic: Rayban Sun Optics- Co. has cash Rs30sharePosted By: Ajith
Subject: Rayban Sun Optics- Co. has cash Rs30share
Date Posted: 06/Aug/2006 at 7:13pm
I think Rayban will shoot up sharply from current levels for many
reasons.
There is an increasing demand for premium and designer sunglasses.Rayban is the undisputed leader in the premium segment and will show a sustained 20 % annual demand in the foreseable future.
The real story is in the designer sunglasses segment where the company imports and markets from parent world leader Luxottica many high fashion brands like Dolce & Gabbane,Prada,Vogue,Arnette,Killer Loop etc.Next year along with parent Ray Ban Sun Optics will launch Polo Ralph Lauren.This segment grew by 50 % on a small base last year.One can expect a sustainable 25% annual growth .
Maybe growth rates will be higher than my esimates because of fashion trends and mushrooming of malls,fashion botiques and above all ofcourse the Reliance Retail factor.
By this year end the company will have at least Rs 30 cash or equivalent on its Balance Sheet.Valuations are cheap.
Among mutual funds only UTI has Rayban.
Right now sales figures are not significant but the potential is immense.
On 4-8-06 Rayban moved up with an unusually sharp spurt in volumes.
------------- Ajith
Replies: Posted By: basant
Date Posted: 06/Aug/2006 at 7:43pm
AJith:
I have followed Ray ban for quite some time but after the controversy over the contact lens division (Bausch and Lomb) and the subsequent regulatory issues with whether to do an open offer or not company has not quite delivered. What you say is correct. Rising incomes will lead to more fashion spends and Ray ban is the biggest brand in eye wear but for the stock to move the management has to take it into newer growth trajectories. Another concern is that eye wear constitutes a very small percentage of a consumer’s shopping basket so unlike watches so the external scale of opportunity is a wee bit small. The alient features of Ray Ban financials are:
Market price
Rs 87
Market capitalization
Rs 214 crores
Book value
34.91
RoE
13%
EPS (Fy 06)
Rs 4.16
Trailing PE
21 times
Market cap to Sales
4 times
Price to book
2.55 times
While the financial are not bad the only concern is the management’s keenness to scale up.Any idea as to when that could happen? Anything that the management stated something in that regard which you could share with us?
You may like to read the various constituents of the Indian Consumer’s shopping basket by clicking on the following link.
------------- 'The Thoughtful Investor: A Journey to Financial Freedom Through Stock Market Investing' - A Book on Equity Investing especially for Indian Investors. Book your copy now: www.thethoughtfulinvestor.in
Posted By: Ajith
Date Posted: 06/Aug/2006 at 12:10pm
I do agree that the management of Rayban Sun Optics has not been agressive enough in India.Parent Luxottica has been focussing its energy on China by buying retailers and also having some manufacturing there.Sooner than later they will turn their focus to India as well.That is certain,the reason being that though as you say the pie is small , Luxottica would like to keep for itself a large chunk of the rapidly expanding pie.(there is heavy competition in the large pies)
Recenly,Rayban Sun MD Harsh Chopra stated at a conference ,"The category is growing rapidly with designer brands.What we need to understand is how to deal with obstacles to growth like the supplychain ,fakes,VAT,and high import duty of 33 percent as transfer price."The problem of fakes and substandard stuff is really negative but my argument is that things can only improve and customers(with increasingly higher disposable income) nowadays want quality and they know where to get it (with the spread of internet and blogging ,this trend will strengthen) -at Lifestyle,Shoppers Stop,Lawrence and Mayo,Himalaya Opticals,Gangar Opticians etc etc.
As you say the crucial question is whether the management is going to get agressive.Also when and how Luxottica will get into the retailing sector with the Sunglass Hut chain or will they buy out chains as they are doing in China?
Since these designer sunglasses have value in the' MADE IN ITALY' tag
and Rayban Sun can just market these, Luxottica may be satisfied with the present equity stucture though I think they have agreed to make the open offer if directed by the court to do so.At the time of the controversy India was not an attractive market and Luxottica was also not as financially sound as it is today.
Considering all factors I think financial ratios will improve and stock price will rise.
Please comment on any new information I may have given and your judgement.
------------- Ajith
Posted By: basant
Date Posted: 06/Aug/2006 at 12:39pm
You really have done some homework on this company and your arguments do appear compelling. WOuld try and see if I can dig some information on this company. But yes, generally investors should have at least a 24 months outlook before getting into such themes but since the downside is well protected all you can lose is opportunity cost. That means one can get in and increase positions as more clarity emerges.I like investing more on tha basis of chnaging business prospects and macro trends because that is where the maximum money is made. More-over if the business model is encouraging then financials iinvariably follow. And if your assesement of Rayban is true then surely the stock could reward shareholders.
What has been Rayban's growth style and revenue scale up in China and other developing nations?I am not sure if Luxotica is listed in case there are other comparable listings it would be interesting to see the kind of market caps those related businesses trade at. If you have any idea on this it could be helpful.
------------- 'The Thoughtful Investor: A Journey to Financial Freedom Through Stock Market Investing' - A Book on Equity Investing especially for Indian Investors. Book your copy now: www.thethoughtfulinvestor.in
Posted By: Ajith
Date Posted: 06/Aug/2006 at 9:11am
I do not have the Luxottica sales figures in China but recently they made their third acquisition in the luxury retail space.If the cash hoard with Rayban Sun Optics is used for getting into direct retail distribution the PE will expand dramatically.
Maybe the management has not been agressive in marketing because of the seamless global advertising strategy adopted by Luxottica across all countries .Also supplychain issues and retail distribution has to be in place first.It all depends on Luxottica's India plans .In any case as you say this is a longterm story.
Luxottica market cap is around 12 billion dollars and its recent stock performance has been impressive.The PE at 24 is also relatively high.So if there are positive signals PE in India could expand considerably within a short period.
Please keep tracking the company closely.
Posted By: basant
Date Posted: 06/Aug/2006 at 10:05am
Luxoticca market cap at US $ 12 billion is significant.My sense is that they sell only sunglasses so creatiung a market cap of this magnitude takes some doing. Also since the Indian enterprise value (Market cap - Cash) is US $ 30 million (Rs 130 crores) Since as you say the PE of the parent is 24 that means that they would be earning about US $500 million each year. SO the Indian operations are worth only 3 weeks of the parent's profits!
The opportunity is certainly there but some how I feel India could wait for a few more years to see that a desired roll out but sonner or later as consumer spending grows companies like Ray Ban will surely be benefitted. But as one can see it can really test an investor's patience.
ALso these businesses could create significant market caps as these comes as a surprise to me. Thanks for filling us in.
------------- 'The Thoughtful Investor: A Journey to Financial Freedom Through Stock Market Investing' - A Book on Equity Investing especially for Indian Investors. Book your copy now: www.thethoughtfulinvestor.in
Posted By: Ajith
Date Posted: 21/Aug/2006 at 9:10am
As per Forbes on 18-8-2006CEO Andrea Guerra said Luxottica ,parent of Rayban Sun Optics is looking at acquisitions and other growth opportunities especially in emerging markets like Russia,Turkey,India,Brazil and Korea.If Rayban agets agressive with its cash hoard of around Rs 70 crores,the PE WILL EXPAND RAPIDLY and it may become a multibagger herereon.
Posted By: basant
Date Posted: 21/Aug/2006 at 9:35am
Thanks for filling in. Rayban remains a stock with good potential and limited downside risks.
------------- 'The Thoughtful Investor: A Journey to Financial Freedom Through Stock Market Investing' - A Book on Equity Investing especially for Indian Investors. Book your copy now: www.thethoughtfulinvestor.in
Posted By: Vivek Sukhani
Date Posted: 26/Aug/2006 at 8:57am
Ajith and Basant,
I really dont know how I end yp getting against both of you all the time, but seriously speaking I get there quite unknowingly.
Coming to Rayban Opticals, I have certaun questuins to ask:
1.The company isnt paying any dividends, am I correct?
2.Price to Book is 2.5 times.
3.The book value I beleive is primarily built up with share capital and securities premium account.It has come yp with rights in 1993(1:2) and 1997(4:7).I beleive share premium account should be treated at par with share capital... after all you can also become cash rich by getting money from your dad....
4.Net Operating Income per share is just Rs.20.Which shows that sales level is pathetic given its Equity capital.
On the plus side, however, there are also some other things:
1.Good Current ratio & Quick ratio
2.Debt-free.
3.Operating margin is increasing.
Now, its a tricky call, if you ask me.I will have to see, how much margin expansion is possible. How much is volume expansion possible.Straightforwardly speaking, it doesnt merit an investment at this level.Wait for the time till the management declares its maiden dividend.
Posted By: Ajith
Date Posted: 17/Sep/2006 at 11:10pm
Vivek,Mr. Basant
As you note the current and quick ratios are excellent.The main plus
is market leadership-Rayban is dominant in the midpremium segment and a host of brands command a good share of the designer segments though there is competition from the liks of Armani,Police...
Rising disposable incomes,fashion trends all favour a spurt in demand and meeting this does not require any capital investment in the designer segment and there is unutulized manufacturing capacity so ROE and other ratios will turn highly favourable.
Further margin expansion is unlikely.In fact margins may come down depending on management strategy.
This is a longterm call because you can never really be sure when the demand spurt will come.
But I think the "TIPPING POINT"will be breached within a year and given the underpinnings the PE may expand along with EPS.
------------- Ajith
Posted By: Ajith
Date Posted: 05/Oct/2006 at 10:54pm
News that Titan is venturing into Rayban's mid premium shades category is good for the dominant Rayban as competition will boost the size of the branded sunglasses market which is unnaturally low at around Rs. 200 crores as Titan would have to advertise heavily in this very difficullt(to survive)industry thereby expanding the total pie.
However,Rayban may be forced to become agressive to defend its market share if Titan performs well.
------------- Ajith
Posted By: basant
Date Posted: 05/Oct/2006 at 11:20pm
I liked your perspective
Titan would have to advertise heavily in this very difficullt(to survive)industry thereby expanding the total pie
Yes, generally monopoly markets do expand with the entry of new players.
------------- 'The Thoughtful Investor: A Journey to Financial Freedom Through Stock Market Investing' - A Book on Equity Investing especially for Indian Investors. Book your copy now: www.thethoughtfulinvestor.in
Posted By: India_Bull
Date Posted: 22/Oct/2006 at 11:10pm
Hi,
Rayban is a premier and must have brand amongst youngsters. Growth of malls and retail industry will help brands like Rayband, VIP Industries,Bata,Archies etc.
Basantji, could we have your views on the brands which are likely to scale up or grow up with a correlation to the increase in spend power and consumption patterns?
Posted By: basant
Date Posted: 22/Oct/2006 at 8:54am
Rayban is a huge style cum status symbol but what prohibits me from getting invested into this stock is the limited market size for such costly frames. india continues to be a "Big Bazaar" market. How many of us on this forum have bought a Rayban sunglass?
Maybe over the next 2-3 years as consumption spends increase we could have Rayban dominating but for anything more to happen Rayban should launch a cheaper variant or else it would have a limited market size.
Now at the current levels there is hardly any downside risk and this is a classic value cum growth play. The thing is that growth could still be a few quarters away. Buy this stock with a 2010 vision and investors should be able to do well since by that time our income levels would have increased or Rayban would get more interested in the Indian markets and launch newer and cheaper products.
------------- 'The Thoughtful Investor: A Journey to Financial Freedom Through Stock Market Investing' - A Book on Equity Investing especially for Indian Investors. Book your copy now: www.thethoughtfulinvestor.in
Posted By: surajmnair
Date Posted: 22/Oct/2006 at 10:37am
Ray ban had a big brand equity even before they came into India.Their Aviator model( Top Gun - Tom Cruise fame) was a big hit all over the world.Rayban's inabilty to bring in new models resulted in the uprising of many brands like police, sting etc in the 90's.Till that time all the sunglasses companies were purely sunglasses companies.But by late 90's leading fashion houses like Gucci, Armaani,D&G also ventured into sunglass business.This really began to crack the market base of rayban , Police and all other excluisve sunglasses companies.
What i think the failure of Rayban is - inspite of having a huge brand equity and loyal client base in India, they were unable to tap the markets with their retail endeavours and new models.
What we infer form this is, either Rayban should have a rebranding strategy or their is some serious concerns with the management.
Psychology of an average Indian sunglss consumer is - why you spend such a huge buck on sunglasses, when the fashion changes every 5 months.Better to stck to low priced '' chinese stuff'' which has got good looks.Indeed true, when your house or apartment which is Reinforced Cement concrete(RCC) gives you a strength of only 50 years, why you want your furnitures to made with teak wood which lasts over 100 years and at the same time the fashion trend in furniture changesevery 3-4 years.
If you look closely, in both the issues above said, the consumer spending pattern changed with the coming of sunglasses from china and furniture from Malaysia.
Ray ban is not gonna die and holds a premium, but defenitely some rework has to happen.We need to continously monitor the company.....
Thanks Borad
Posted By: bub100
Date Posted: 23/Oct/2006 at 8:01pm
rayban had good future no doubt but first they will go for buyback than go for expansion as most of the MNC do to get most of the benefit - losser is the shareholder who had no faith in the company.
thanks
------------- gs
Posted By: basant
Date Posted: 23/Oct/2006 at 9:02pm
That is the biggest threat with these MNC's see what they did to Eserve, Digital. I mean it is very much possible that when Rayban sees itself with a big opportunity they may come up with an open ofer and all analysts would look at the pE and say well, it makes sense to tender and then Rayban would launch itself again. Very much a threat I would confess.
------------- 'The Thoughtful Investor: A Journey to Financial Freedom Through Stock Market Investing' - A Book on Equity Investing especially for Indian Investors. Book your copy now: www.thethoughtfulinvestor.in
Posted By: bub100
Date Posted: 23/Oct/2006 at 1:58am
as per the last data they have to go for buyback at 104.- so I donot think that the openoffer would be less than 100.- but it test our patiance.
as a patiance investor good to hold with less down risk.
thanks
------------- gs
Posted By: Ajith
Date Posted: 30/Oct/2006 at 10:27pm
All the comments on the business of Rayban Sun are regarding Rayban brand and growth here is ordinary-15-20%.(so no point in Rayban going in for cheaper products which strategy met with disaster in India a few years ago)The real growth can come only from premium brands like Prada,Versace,Chanel,Ferragamo,Polo Ralph Lauren.....growing at 50 percen on a small base( but by now larger than (midpremium )Rayban sales) without any advertisements.Of late real growth has been here in the above Rs8000 category, according to the annual report.Lately,fashion and premium journals like Cosmopolitan,Men"s Health,Top Gear( Annual issue)seem to have ads and special pages devoted to high fashion eyewear.I suppose with designer outfits flying off the shelves these shades too will as I see ( in the photographs)that both go together.I also observe that most motorcyclists wear shades,perhaps unbranded but over the years a slight shift to high class,(made of really superior material) would mean that a huge market would emerge.
Luxottica has been reluctant to increase stake as required by law and has gone to court.Also in an interview CEO Harsh Chopra has said that interest of all shareholders will be taken care of.
I expect staus quo on shareholding to be maintained due to FDI restricions for retail and that is what Luxotticca is all about but I am not certain about their plans and am only guessing.
Quarterly today-July-Sep is the weakest quarter.While profits would depend on company strategy,sales turnover has to grow by at least 25 %.Whatever be the results I will be waiting for results after 2 years when
luxury malls and standalone retail fashion outlets together with fashion trends and rising disposable incomes really make a difference..
------------- Ajith
Posted By: Ajith
Date Posted: 01/Nov/2006 at 12:00pm
Rayban Sep results were way ahead of my optimistic projections with sales at Rs14.2 crores,net profits at Rs 2.73crores.Designer sunglasses market in India is taking off.
------------- Ajith
Posted By: Ajith
Date Posted: 10/Nov/2006 at 3:34pm
Great upmove by Rayban today to close at recent high 0f 94.05.
------------- Ajith
Posted By: bub100
Date Posted: 12/Nov/2006 at 5:35pm
as I check with the dealer they are selling good quantity from rayban.
great vol.> 1 mio
------------- gs
Posted By: Ajith
Date Posted: 14/Nov/2006 at 9:54pm
In todays chat R Damani commented that Rayban does not interest him currently because it has a 'bloated equity'.He is right on the surface just like in the case of TVS Suzuki many many years ago on a similar equity cap someone commented 'elephants don't dance' and subsequently it was more than a 15 multibagger as demand for motorcycles soared.
According to http://www.abhishekbachchan.org - www.abhishekbachchan.org dt. 08-09-06 Abhishek may endorse Rayban.Unless there is market potential Rayban would not have been thinking along these lines.
------------- Ajith
Posted By: basant
Date Posted: 23/Dec/2006 at 1:45pm
Shayne John is known to me for a couple of years.In June when the markets were tanking he was among the few who thought that the time is right to buy stocks and did actually invest. He is a fund manager in the US and had written an article on why RayBan excites him. The link to that article is posted below:
------------- 'The Thoughtful Investor: A Journey to Financial Freedom Through Stock Market Investing' - A Book on Equity Investing especially for Indian Investors. Book your copy now: www.thethoughtfulinvestor.in
Posted By: Ajith
Date Posted: 23/Dec/2006 at 4:12pm
Rayban Q3 06 sales is up more than 70 percent and not 32 percent as Shayne John states(Shayne is probably referring to the 32 % jump recored for the 9 months ended 30 Sep 06).This jump is most unexpected and if its a trend then even allowing for the small base effect a growth rate of 32 percent that Harsh Chopra Rayban hinted at in the CNBC interview would mean an EPS of 10 is possible for Decemer 08.There are ofcourse(more or less) no capacity constraints for Rayban Sun for the time being and PE for such a company could be arguably high.
Personally I had been buying heavily except at higher levels in the past few days as I am very very optimisitic about sales growth because I am seeing the growth of modern retail and mushrooming of quality optical shops all over the high streets in the metros and I see a fit case for the tipping point(I am referring to the Hush Puppies example given in the book)to be breached.
Shayne John,I now gather,manages 2.6 billion dollars at NCM Capital Management,USA.Really and truly, a great feeling to know that his view on Rayban matches mine.
------------- Ajith
Posted By: Ajith
Date Posted: 01/Mar/2007 at 1:05pm
With non-Rayban brands likely to go out of its eyewear portfolio the charm has gone out of the scrip.No wonder the forward PE looked tantalizing.
------------- Ajith
Posted By: Mr. V
Date Posted: 05/Mar/2007 at 2:26am
Luxottica seeks NOC from Rayban Sun Optics India to set up subsidiary in India
Rayban Sun Optics India Ltd has announced that the Board of directors of the Company has received a proposal from Luxottica Group S.p.A. Italy (Luxottica) indicating their intention to set up a wholly owned subsidiary(ies), in India, either directly or through one of its subsidiaries, engaged inter alia, in the business of carrying out wholesale distribution of various luxury & fashion brands in the eyewear industry, including the distribution of spectacle frames and sunglasses. Luxottica Group S.p.A, has requested a no-objection certificate from the Company for this purpose.
The proposal indicates that, subject to setting up of a wholly owned subsidiary in India for undertaking wholesale cash and carry business in luxury & fashion brand eyewear other than RayBan brand, Luxottica proposes to grant a five year exclusive license to the Company for the manufacturing and distribution in India of frames and sunglasses under the trademark RayBan.
The proposal also indicates that, subject to setting up of a wholly owned subsidiary in India for undertaking wholesale cash and carry business in luxury & fashion brand eyewear other than RayBan brand, Luxottica proposes to grant a five year exclusive distribution license in India of frames and sunglasses under RayBan trademark manufactured by Luxottica.
At the board meeting dated February 25, 2007, the Board of Directors has evaluated the proposal and recommended its approval to the shareholders at the upcoming Annual Genera] Meeting.
Posted By: bub100
Date Posted: 06/Jul/2007 at 7:44pm
Hallo Basantji,
please share your view on rayben for those who are stil holding after the open offer.
Posted By: Vivek Sukhani
Date Posted: 06/Jul/2007 at 8:59pm
Advanced Medical makes $75-/shr bid for Bausch & Lomb: WSJ
By Carolyn Pritchard
Last Update: 3:36 PM ET Jul 5, 2007
Posted By: Vivek Sukhani
Date Posted: 23/Nov/2007 at 8:40am
Another company which has a huge cash balance per share is Porritts and Spencer Asia.......on a price of Rs. 200-210 per share, the cash balance is nearly 85 rupees per share.......
Posted By: balloon
Date Posted: 14/Aug/2008 at 4:07pm
What could be the possible buy-back price for Rayban shares? Any views of the group members?
Posted By: basant
Date Posted: 21/Aug/2008 at 11:31am
Has this been reduced to just a buy back story. Every year there is something on the buyback front. What has happened to their operating business any ideas?
------------- 'The Thoughtful Investor: A Journey to Financial Freedom Through Stock Market Investing' - A Book on Equity Investing especially for Indian Investors. Book your copy now: www.thethoughtfulinvestor.in
Posted By: Ajith
Date Posted: 22/Aug/2008 at 12:52pm
Just a buyback story as I saw and posted here ever since luxury brand portfolio was planned to be moved out of the listed space.
------------- Ajith
Posted By: xiaozhengm
Date Posted: 17/Dec/2015 at 7:44am