Maxwell Industries :: Karvy

Expect Margin Expansion on Excise Benefits
and Premium Products
Maxwell Industries Q4FY13 sales & EBITDA grew 16% & 10% YoY to Rs.
581mn & Rs. 42mn while it reported net loss of Rs. 1.4mn as against net loss
of Rs. 8.6mn in the corresponding quarter. For full year FY13, sales &
EBITDA grew 14% & 11% while it reported net profit at Rs. 29mn vs loss of
Rs 12mn in FY12.
Revenue Growth: The Company’s top‐line grew 16.2% YoY to Rs. 581 mn
(our expectations Rs. 595 mn) during Q4FY13. During FY13, revenue grew
14.0% to Rs. 2,537 mn where realizations grew over 20% YoY. Maxwell has
introduced ~80 new styles in FY13 while some premium products are in final
stages of launch. It is focused on new products under Eminence & VIP
brands to establish itself as a premium innerwear manufacturer. This is
expected to further improve operating margins on higher realizations.
Operating margins: The Company’s EBITDA grew 7.4% YoY to Rs. 41.7 mn
(our expectations Rs. 53.5 mn) during Q4FY13 on account of higher advt.
expenses. EBITDA margin for the quarter stood at 7.2%; slipped 57bps YoY.
Adv. exp were up by 7x YoY to Rs. 44.0 mn for Q4FY13. EBITDA for FY13
grew 11.0% to Rs. 205mn where the Company spent Rs. 133.3mn in Adv. Exp
(Budgeted Rs. 100mn) compared to Rs. 37.7mn during FY12. Going forward,
better operating margins are expected on lower advt. exp and higher
realizations on excise duty removal.
Maxwell reported net loss of Rs. 1.4mn for Q4FY13 compared to loss of Rs.
8.6mn in the corresponding quarter. However for FY13, Maxwell reported
net income of Rs. 28.5mn against net loss of Rs. 12.3mn in FY12.
We revised down our expected Sales by 6.8% and 10.4% & EBITDA by 1.9%
& 14.5% for FY14E and FY15E respectively on slower volume growth. Net
Income revised down by 13.1% and 33.1% for FY14E and FY15E respectively.
Outlook & Valuations
We expect revenues & net income to grow at a CAGR of 16% and 111% over
FY13‐FY15E. At CMP of Rs. 14, the stock trades at 5.3x & 7.0x FY15E
EV/EBITDA and earnings. We reiterate our “BUY” recommendation and
downgrade our target price to Rs. 21 (Rs. 24) per share based on 6.5x FY15E
EV/EBITDA & 10.5x FY15 EPS, having potential upside of 49%.

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.

Maxwell Industries :: Karvy research

Business Disintegration – A Revised Strategy
to Focus on Innerwears
Maxwell is in the process of disintegarting spinning and weaving with a
view to concentrating solely on innerwear business, as earlier the Company
was actively involved in the entire process right from procuring cotton to
shipping innerwear etc. Henceforth, Maxwell would procure fabric directly
and concentrate on manufacturing of innerwears, which will help in
maintaining low inventory levels, higher margins and strict quality control.
The first step of this process led to discarding spinning unit for a
consideration of Rs. 390 mn and debt repayment.