Tuesday, 13 October 2015

Query on Pioneer Embroideries Ltd

Our friends Sanjeev and Darshan have posted queries about Pioneer Embroideries Ltd. Earlier also I am getting queries on this. So let' have a small look.

Que: Can you share your thoughts on pioneer embrioderies,godavari drugs and bambino agro. These are in my list of less than 100cr mcap and some risk.
Also would like to know about investing in GATI at current market price after correction in logistics space.

 I am not tracking these. Gati, picked at 30 and already sold around 150 as i was not comfortable with valuations, these low entry barrier firms were getting. For logistic play i am investing heavily in concor, balmer, Redington, Future retail, gateway etc as these are true logistic players with all round and complex logistics solutions like ports, warehousing, ICD, containers etc. But i am holding these from very lower levels although i am adding these at current market prices also but my avg cost is still very low as compared to CMP. So i am neutral on Gati. Trucks and stores are not high tech logistics; anybody can enter in it.

Pioneer, well, I have never studied it either but just now made a 10-15 minute round. Textile is a very difficult business in india as we are near China and Bangladesh. Garden silk is dead for a long time. Even classic Raymond is struggling for a long time. It is still looking for a COMPLETE business model. There are hundreds of sarees brands in india. Fashion retail is most difficult business in india just like running an airline and you will be surprised that the reason is not linked much to demand and products but too high real estate prices and lease rentals.

Ask any girl about Hakoba and most may not be knowing it or you can’t differentiate it from the other hundred generic saree and fashion brands. Raymond will one day be complete because it has great technology and gigantic brand name. even still, it is burdened with losses in retail business. You can count very few branded success in india in retail. I also think the reason for this is unreasonable high investments in fashion business in india. You can see hundreds of branded apparel show rooms in every city because people think it is an easy business. So the total possible business is divided among too many players and so everybody is in loss. Few players will make it profitable and demand for real estate will also fall.

On total assets of around 200 cr turnover is very low at 270 cr. But its turnover is rising continuously for last 10 years so I wonder what was the need for making huge capacity expansions when much of it was and is still unused. From 2007 to 2010, it borrowed around 160 cr but added only 80 cr of assets and then it went to CDR cell?? Its turnover has increased to 265 cr from 100 cr in last 10 years but its inventory and debtors are always in the range of 35-45-50 cr!!! It has never earned good high margins even when it was in its so called good times. Just see the margins of good medium level brands like Kewal kiran.

There is also some strange advances, one 9.75 cr to a BIFR company Arcot textile and now they are trying to get it back as the same is not getting itself out of BIFR (recieved so far 1.3 cr ); 6.5 cr for some properties which are not taking place ; so they are trying to get these back and hence they are considered good!!!

Some useless investments in dubious companies like padmini tech which are not getting listed and hence these are written off, amount involved is small, around 18 lac..but what is happening here?? They are in difficult times and yet these unrelated and useless advances and investments!!!

It is in very difficult business with large unorganized players having same products with matching quality. It is too risky for me. Although I am having Titan Biotech which belongs to same high risk category. But Titan has some unique products with medium to high entry barriers, good clean balance sheet and it is paying dividends remarkably regularly. 

I do not want to devote any further time to Pioneer. I cannot claim that with these 10-15 minutes I have covered everything. There may be something which I may be missing but I do not like its products, very small scale of operations in a commodity type business.I normally stay away from these types of risky stocks. We have taken risks with stocks like SKM, Avanti, MPS, NIIT, Jubilant industries, Eveready, Venky's etc. But one can see the difference, all these stocks are dealing in niche business areas with some having great brand power like NIIT and Eveready. These are risky stocks where risk is only about future performance; all other things are nicely at their place.

I think we can better go for Raymond as apart from branded textiles business it is also having park avenue FMCG brand and huge land bank.

(Views are personal and should not be taken as a recommendation for buying or selling a stock. Stock markets are inherently risky so kindly do your Due Diligence before investing)


  1. Hello Gurpreet. Good to interact with you after some time.Do you track basant agro tech a fertiliser and seed company with five plants,topline of 300 crores, m cap of just 59 crores, dividend paying, cmp 6.50, bv of 10.Recently they seem to venture in water bottle plant .

  2. Hi, I completely agree with you on your finding on Pioneer. Alok industry is one of the largest in Embroidery. On the same time not agreeing with your argument on textile business completely. For instance Look into Nandan Denim. We can find similar many companies in textile.

    Anyway I appreciate your effort and enjoy your writing. Pls continue your good work. God bless you.

    1. Dear sir, Thanks.

      But perhaps You misinterpreted the view on Fashion Textile business. It was about “Fashion branded textile” in particular and common textile mills in general. There are many textiles mills like vardhman, arvind, Mafatlal, siyarams etc who are earning good profits. These mills supply raw material to fashion brands who need to do the business in a complete different manner than by textile mills as fashion brands need to invest and focus big on branding, marketing, store expansion, supply chain, inventory management, strict quality control etc. Even a mistake in one factor like inventory can wipe out all of operating profits. Indians do not understand branding much; they take it just showing of ads. Fashion brands die normally due to mistakes in branding, stores expansions and inventory.

      Dynamics of success are different for Fashion brands. But most of the success stories in Indian fashion are about integrated players like Raymond, siyarams, vardhman who are itself producing the raw material for their branded business thus crossing the so many obstacles of fashion business. Monte carlo is another example of integrated player with great inventory management. But we can count successful dedicated fashion brands (not integrated) on tips. Inventory and high rentals have torn them apart.

      In fact I am holding Trident from 10-15 which is mainly into terry towels. But even still we can’t say that textile business is easy as these are earning profits. These mills are earning because of their large scale, decades old legacy, strong customer and supplier relationships, easy and cheap loans etc. Baring these few, most of other smaller ones are suffering from low ROE, unused capacity etc although they may still be in profits.

      Some biggies like Vardhman and siyarams have great ROE and profits. In fact each textile success story has its own standards, factors and ground realities which can be studied only in isolation.

  3. Fine GS,

    I will look accordingly. I had the similar opinion before i went in deep to understand their hidden potential.

    In the ‘Laces’ segment company is the second largest producer in the world. Company operating six manufacturing facilities across India with facilities to produce Embroidery (4248 million stitches), Bobbin Lace (25,200,000 mtrs), spun yarn (1,788 MT) and dope dyed yarn (10,500 MT). Due to leveraged and untimely expansion ( mainly in retail segment) and unexpected downturn in overseas markets due to recession ..etc company went into big trouble .From a net profit of Rs.15 Cr reported in 2007 , its bottom line crashed to a loss of Rs.33 Cr in 2013 ( Out of this Rs.33 Cr , more than Rs.15 Cr were interest payment) . Sensing the big trouble, management initiated efforts to revive the company . Now they are just nearing to consistent profits.

    Recently, just few weeks back, they settled all their debt with SBI and more than 40% of it's debt is taken up by EXIM bank in the form of shares (85 lakh shares at 35rs each). Textile sector is flaring well in last one year. See Nandan denim, Ambike cotton etc... I believe they can bring back their lost glory pretty sooner, not more than 6 months. Yes, opinion defers. I shall consider your valuable points and insight and take a call accordingly. Have a great day :-)

    1. Best of luck Dear...yes, i may be wrong. you seem to have much detailed study about the working.

  4. Thanks a million for looking into Pioneer upon readers request and giving your perspective on the same. Your view gave a valuable information so that we can take informed decisions.

    I am your ardent follower and appreciate all your great calls. Have a wonderful day.

  5. Dear Gurpreet , do you track RTS power, promoters increased holding from 37% to 67% in last five years, low equity, last quarter seem to be turn around.Company in transformer & transmission business and with govt committed to 24 hours power, may be a grand multibagger from these levels,life high of more than 200 in 2007 and presently at 49.

    1. First your query on Basant agro: Not tracking it but does not look good at first glance. Finances do not look great...Inventory, debtors levels are not comfortable; in last 5 years it earned around 70 cr including depreciation and took more debt of 70 cr, so out of 140 cr assets added 60 cr...80 cr is blocked in inventory/debtors??

      RTS: Never studied it but i feel it is a small player in highly competitive and out of the favor power sector...nothing to show in results, no pricing power i think. Debtors, inventory levels are not good at all. Does not look attractive for further study. so take your chances :) :)