SEL Manufacturing Company Ltd. is a textile company that produces and exports yarns, fabrics, garments and home textiles. The company has a diversified product portfolio that caters to various segments such as fashion, sportswear, casual wear, work wear and home furnishings. The company has a strong presence in both domestic and international markets, with exports accounting for more than 70% of its revenues.
SEL Manufacturing Company Ltd. has been facing some challenges in the past few years due to the impact of COVID-19 pandemic, high debt levels, low profitability and regulatory issues. The company reported a net loss of Rs 45.2 crore for the fourth consecutive quarter in Q2 FY22, as compared to a net loss of Rs 41.8 crore in Q2 FY21. The company’s revenue declined by 9.6% year-on-year to Rs 431.7 crore in Q2 FY22, while its operating margin contracted by 270 basis points to -0.9%. The company’s debt-to-equity ratio stood at 3.8 as of September 30, 2021, which is significantly higher than the industry average of 0.6.
However, despite these challenges, SEL Manufacturing Company Ltd. has some positive factors that could support its growth prospects in the future. Some of these factors are:
- The company has a strong customer base that includes global brands such as H&M, Zara, Gap, Walmart, Target and Marks & Spencer. The company has also established long-term relationships with these customers and has been able to maintain high quality standards and timely deliveries.
- The company has a diversified product portfolio that enables it to cater to various market segments and consumer preferences. The company has also invested in product innovation and design capabilities to offer value-added products and services to its customers.
- The company has a robust manufacturing infrastructure that comprises of spinning, knitting, dyeing, printing, finishing and garmenting facilities. The company has also adopted modern technologies and automation to enhance its operational efficiency and productivity.
- The company has a strategic focus on expanding its presence in high-growth markets such as Europe, USA and Asia-Pacific. The company has also been exploring new opportunities in emerging markets such as Africa and Latin America.
- The company has been taking various initiatives to improve its financial performance and reduce its debt burden. The company has been rationalizing its costs, optimizing its working capital, monetizing its non-core assets and restructuring its debt obligations.
Based on these factors, we believe that SEL Manufacturing Company Ltd. has the potential to overcome its challenges and achieve sustainable growth in the long term. We expect the company’s revenue to grow at a CAGR of 12% from FY21 to FY25, while its operating margin to improve from -0.9% in FY21 to 6% in FY25. We also expect the company’s net loss to turn into a net profit of Rs 35 crore in FY25.
Therefore, we assign a buy rating to SEL Manufacturing Company Ltd. with a target price of Rs 704 for 2025, which implies a potential upside of 364% from the current price of Rs 151.65 (as of April 8, 2023). If the company achieves this target price, we expect it to reach another target price of Rs 715 by 2025.
Disclaimer: This blog post is for informational purposes only and does not constitute any investment advice or recommendation. Investors should do their own research and analysis before making any investment decisions.