Maxwell Industries:: Karvy report

Focus on innerwear showing results
Maxwell Industries sales, EBITDA and net income grew by 24%,
9% and 122% YoY respectively.
Revenue Growth: The Company’s top‐line grew 23.9% YoY to Rs. 756 mn
during Q2FY13, while sequential growth was reported at 28.8%. The top‐line
growth was on the back of 16% YoY volume growth as well as realization
hike of approx. 3%. The Company’s decision to focus on innerwear and
closing spinning business is showing better results. The Company is
increasingly focused on introducing new product lines under Eminence &
VIP brands to establish itself as a premium innerwear manufacturer. This
would further help to improve operating margins on higher realizations.
Operating margins: The Company’s EBITDA grew 8.7% YoY to Rs. 60.2 mn
during Q2FY13 on account of higher raw‐material and other input costs.
EBITDA margin for the quarter stood at 8.0% which declined 111 bps YoY
and 95 bps QoQ. Advertisement expenses were up by 4x YoY to Rs. 39.9 mn
for Q2FY13. The Company aims to incur Rs. 100 mn in advertisement for
FY13, out of which Rs. 65.1 mn were incurred during H1FY13. Therefore
better operating margins are expected for H2FY13 on lower advt. expenses
and better realizations.
Net income shot up on revenue growth: Net Income for Q2FY13 grew
122.4% YoY to Rs. 14.5mn on the back of higher top‐line growth. On
sequential basis, net income was up by 41.6%.
We revised up our expected Sales by 8.1% and 11.2% for FY13E and FY14E
respectively & EBITDA up marginally by 0.4% and 3.7% for FY13E and
FY14E respectively. Expected Net Income has been revised down by 3.5%
and 0.1% for FY13E and FY14E respectively.
Outlook & Valuations
We expect the Company to be in positive net earnings by FY13E and
revenues to grow at a CAGR of 20% over FY12‐FY14E. At CMP of Rs. 26 per
share, the stock trades at 13x FY14E earnings and 7.1x FY14E EV/EBITDA.
We maintain our target price of Rs. 26 per share and downgrade our
recommendation to “HOLD” as target price achieved.

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