Background: During these turbulent times, it pays handsomely to be in the sector which is leading the present bull market, in a stock within the sector which is fundamentally very strong and technically brilliant, which would give it strong downside protection and humongous upside potential. Hopefully the fear psychosis of the markets would work and this should give genuine investors a great entry point. Today, I’ll discuss about BSL Ltd, which I think is an extremely safe bet and can give multi-fold returns in the coming future. Those who are oldies on the blog must know that I am always inclined to suggest stocks during market mayhem as it provides genuine investors a good entry point.
The Company: BSL is a part of LNJ Bhilwara group and owner of brands such as Geoffrey Hammonds, La-Italia and BSL Suitings. BSL is one of the major textile companies in India with presence in the entire value chain of the Textiles Industry. BSL is engaged in the manufacturing of wide range of yarns and fabrics including woolen/worsted yarn, synthetics yarn, blended viscose fabrics, silk fabrics, furnishing and fashion fabrics. BSL is one of the few companies in the industry that is an integrated textiles player with diverse product portfolio and low client concentration. The top five clients just contribute around 19% of its revenues and even geographically the client base is well spread. Being in high end fabrics, the China threat is very less and being fully hedged, the company normally does not suffer earnings shocks because of forex fluctuations. BSL is a dividend paying company with excellent cash flows. The company some time back, increased its focus on bottom line led growth and strategized its entire operations from that perspective. Cost streamlining across all its operations was introduced, focus on outsourcing introduced as it improves capital allocation, et.
- BSL bagged a new client in Ikea Home furnishing last year. From Ikea this year (Dec 15) the company has bagged a huge order which alone would significantly add to the company’s growth in the coming quarters (apart from the usual growth ofcourse).
- BSL launched its own e-commerce site in last FY and interestingly within first two quarters were able to become EBITA positive and would become net positive this FY. This is in addition to selling their merchandize on Amazon,Snapdeal,Flipkart, Jabong etc.
- The company in order to move away from capex led growth and improve the bottomline has started outsourcing some of its manufacturing. Currently the company outsources around 10%, which should be increased significantly going forward.
- BSL in last CY added new clients in geographies like Peru, Mexico and Bolivia.
- BSL is completing a 20% capacity expansion this month, funds for which was mobilized mostly from internal accruals and partly from debt. This is in stark difference to other textile companies which mostly rely on debt funding and it highlights BSL’s superb cash profile.
- Lowering of input costs, along with reduced interest burden will add to the bottom line and combined with the impending growth, the absolute improvement in the bottom line is expected to be significant.
- The company is dividend paying and company believes that they would like to share the bottomline growth with investors and is likely to increase dividend payout this year.
Valuations: BSL is a dividend paying, high cash flow company available at a PE of just 9 whereas the other branded apparel companies like Donear and Raymond are quoting at high double digits PE of 25-35. Promoter’s stake is at 56.44% without any pledge. BSL is available at a market cap of around 89cr with market cap to sales of just 0.25 times and a very attractive dividend yield of around 1.5% which is only going to improve this year. Although for the first half of this year, the topline is almost flat with negative bias, the bottomline has grown 73% and the same growth is expected to be maintained in bottomline for the rest half of this year and topline is expected to improve, especially in this quarter due to start of the Ikea’s order and export to new clients in the new countries mentioned before. More importantly, the growth is expected to continue for the next few quarters as well and in the coming years.
Technicals: The stock has given a 14 yr breakout in this market mayhem and is firmly trading above that level (and is maintaining that for last couple of weeks) and I think this says it all. The stock gave this massive breakout, created a new high and gave a bit of retracement and after testing the channel support has again started a new upmove. Doing all this in such market mayhem is truly special and marks significant strength in the stock.
BSL is a company with strong brands and is available at juicy valuations. It is a dividend paying company that is generating very good cash flows. The company is at a cusp of strong growth in profitability along with decent topline growth. Given the key significant developments as suggested above, I think this is a safe stock that is fundamentally very strong and technically very sound.
God Bless !!!
Disclaimer: It is safe to assume that I may have some vested interests in the stock. Also, the above stock view is my personal view in individual capacity. For rest, please look at the About page.