Company Overview

S.P. Apparels Ltd., headquartered in Tamil Nadu, is committed to meeting the rigorous standards of international fashion brands such as Crocodile, Head, and Natalia. The company has a strong focus on sustainability, incorporating eco-friendly practices throughout its production processes to minimize environmental impact. Innovation is at the core of its operations, with the company continually adopting the latest technologies and trends to stay ahead in the competitive industry.

Industry Analysis

The Indian textile industry is forecasted to grow at a CAGR of 14.8% from 2021 to 2025, reaching a value of $350 billion by 2025. The apparel and textile industry contributes approximately 2.3% to India's GDP, 13% to industrial production, and 12% to exports, with a 4% share in global textiles and apparel trade. The government's Production Linked Incentive (PLI) Scheme, with an outlay of INR 10,683 Cr, aims to enhance the production of MMF Apparel, MMF Fabrics, and Technical Textiles, promoting industry growth and competitiveness.

Financial Performance

• Revenue: INR 1,078 cr. in FY23, a 27.8% increase YoY
• Profit after tax: INR 83 cr. in FY23, a slight decrease from INR 85 cr. in FY22
• Operating margins: Declined from an average of 16% to 13%
• Order book size: ~INR 360 cr. as of FY2023

Strategic Initiatives

1. Acquisitions: S.P. Apparels acquired Young Brand Apparel Private Limited for INR 165 cr. in FY23 and Bannari Amman Spinning Mills' garment unit for INR 58 cr. in February 2024 to boost market presence and diversify its portfolio.
2. Operational Advancements: The company reported a 15% YoY revenue increase to INR 225.3 cr. in Q3 FY24, driven by exports of 14.3 million pieces. The garment segment achieved an adjusted EBITDA of INR 38.71 cr. with a 17.2% margin, targeting an 18% EBITDA margin for FY24.
3. Expansion Plans: S.P. Apparels plans to commence operations at a new factory in Sivakasi by August 2024 and targets a 10-15% growth in the garment business during the next fiscal year.

Market Opportunities

• Shifting retail preferences due to rising wages in competing markets like Bangladesh
• Expanding garment export range and establishing a foothold in Sri Lanka

Valuation and Recommendation

Based on our analysis, we assign a target PE multiple of 20x to S.P. Apparels' FY25 EPS of INR 46.57. The target price of INR 931 reflects an upside potential of 50% from the current price of INR 570. We recommend a "Buy" rating for S.P. Apparels Ltd., considering its strong market position, strategic initiatives, and growth prospects in the global textile and apparel manufacturing sector.

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Disclaimer:

Mool Capital Limited is a SEBI Registered Research Analyst having registration no. INH000012449. This report has been prepared by Mool Capital Pvt. Ltd. and is solely for information of the recipient only. The report must not be used as a singular basis of any investment decision. The views herein are of a general nature and do not consider the risk appetite or the particular circumstances of an individual investor; readers are requested to take professional advice before investing. This document is not, and should not, be construed as an offer or solicitation of an offer, to buy or sell any securities or other financial instruments. This report should not be construed as an invitation or solicitation to do business with Mool Capital. Mool Capital and its affiliated company(ies), their directors and employees may; (a) from time to time, have a long or short position in, and buy or sell the securities of the company(ies) mentioned herein or (b) be engaged in any other transaction involving such securities and earn brokerage or other compensation or act as a market maker in the financial instruments of the company(ies) discussed herein or act as an advisor or lender/borrower to such company(ies) or may have any other potential conflict of interests with respect to any recommendation and other related information and opinions.

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