Saturday, August 25, 2012

S Kumars Added by Copthall, After Deep Fall

Nitin S Kasliwal,
Vice Chairman & Managing Director,
S Kumars Nationwide Ltd.
By A Vidya, Staff Reporter:
Saturday, 25th August 2012, 03:00 PM IST:

S. Kumars Nationwide Ltd (BSE: 514304, NSE: SKUMARSYNF) counter in NSE, on Friday, witnessed a major buy of 27.25 lakh shares by the leading FII, Copthall, a unit of JPMorgan Chase & Company.

The deal was disclosed at National Stock Exchange after trading closed for the week on Friday.

Copthall Mauritius Investment Ltd picked up the shares at the rate of Rs. 21.53, with the buy amounting to a 0.92% stake in the leading textile and apparel company.

This JPMorgan (NYSE: JPM) unit, already held a 5.67% stake in S. Kumars Nationwide Ltd (SKNL), which had made it the largest non-promoter shareholder of the firm.

Adding Friday’s buy, Copthall’s stake stands at 6.59% of the equity base, if this FII hasn’t transacted in the counter since June end for which the latest Share Holding Pattern (SHP) stands.

Other large investors in the counter are Columbia Acorn International, Artha Emerging Markets Fund (Mauritius), Merrill Lynch Capital Markets Espana, IL&FS Securities Services, Barclays Capital Mauritius, and Macquarie Bank.

No identifiably large institutional seller was visible in the counter on Friday, selling above 0.50% stake.

Though promoter holding is reasonably high at 48.59%, an exceptionally high percentage of it - 99.83% - is pledged, which the company claims to be given as additional collateral with their long-term lenders, and not for any private fund raising by the promoters.

The SKumars stock has been on a steady fall during the current year-to-date as well as in the preceding year. During these 24 months, SKNL has shed almost four-fifths of its share value.

Interestingly, even on Friday, the opening in BSE was deep in red, down by 6.24%, and touching a new 52-Week Low of Rs. 19.55. However, the opening was better in NSE, where S.Kumars resisted marking a new year-to-date low.

Later, during intraday trade, SKNL soared around 8% in both the exchanges, before closing the day at slightly lower levels than the intraday high.

The value erosion in SKumars has been a reflection of the difficult times facing the company, as well as the textile industry in the country as a whole, since the economic crisis started in 2008.

Though consolidated topline has been growing satisfactorily for the last four fiscals, and erosion in EBITDA margins hasn’t been too much (22.49% to 21.05%) during this period, the stock entered a downward trajectory, as consolidated Net Profit Margin dived from 11.76% in FY’08 to just 7.41% in FY’12.

The main culprit behind the NPM fall was, of course, debt, which has skyrocketed during this same period, as well as soaring input costs.

SKNL has followed a strategy of developing strong brands during the last few years, and it indeed has reasonable brand presence with assets including Reid & Taylor, Belmonte, World Player, Baruche, Uniformity, and Carmichael House, apart from the long running S.Kumars brand.

It has invested heavily in this strategy, with heavyweight brand ambassadors like Amitabh Bachchan and Sachin Tendulkar, and this may be a strategy that can turnaround in the longer run.

At the same time, S.Kumars has been unable to go in for their long-pending IPO of key subsidiary Reid & Taylor, despite getting SEBI approval around a year back. The firm is now understood to have dropped its plan, though rumours of a stake sale to PE funds crop up now and then.

During the latest June quarter, the firm put up a sluggish performance, with topline dipping sequentially and net profit diving down both sequentially and year-on-year. However, EBITDA has improved on a year-on-year basis.

Like most other textile firms, the counter will be helped more by any imminent policy decisions by the government regarding the sector’s debt pile-up.

SKNL’s Return on Equity (RoE) stood at a reasonable 14.13% in FY’11.

Friday’s buy by Copthall for Rs. 5.87 crore appears to be a call based on the assumption that a bottom might have been already reached in the counter, given the accelerated fall in recent weeks. 

Whether this strategy will sustain depends upon the calls other institutions will take in the coming sessions. SKNL has reasonable institutional participation of 25.49%, almost fully made up of FIIs.

On Friday, the strategy seemed to be working, with S.Kumars Nationwide closing in green, at Rs. 22.35 in NSE, up by 7.45%, compared to Nifty’s fall of 0.53%.