I noted from the financials that though the company has quite a bit of debt, it turned around the operating cash flow situation in FY12 with efficient working capital utilization. However, as the savings went into capex, the net cash position and leverage did not improve.
The company trades at P/BV of 0.19 and dividend yield of 5.5%, but this despite being profitable. As the profits do not reflect in FCF/OCF, maybe that is why investors are shying away from this stock. Otherwise, a textile company with 45+ global brands and global presence(as evident from the above map) should not be undervalued. There are some negative qualitative factors though, which are material, which I reproduce from the annual report.
- Aggressive accounting by the company. As mentioned in the auditor's report, they capitalized Rs 85 crores brand spending, which is debatable under accounting norms
- Financial Management could be better-this is a company which defaulted for some time on bank dues, which still spending on capex!
- Suddenly started commission to non -executive directors in FY12-Rs 90 lakhs!
CONCLUSION:- It is not very clear as to WHY the company is spending on capex again. The investor relations PPTs/concall transcripts on website are outdated. So without clarity on whether the capex is being well spent, entering this company is risky given the qualitative factors. Upside trigger could be the Reid & Taylor IPO finally happening as planned.