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Indian Rayon – Going overseas - Views on News from Equitymaster
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  • Dec 22, 2000

    Indian Rayon – Going overseas

    Indian Rayon, the A V Birla Group Company, has acquired the global rights for its prominent brands, which include Louis Phillipe, Van Heusen and Peter England from Coats Viyella of UK, for a consideration of US$ 2.3 m (Rs 110 m).

    Earlier last year, the company acquired Madura garments and their brands Van Heusen, Allen Solly, Louis Phillipe, and Peter England with the exclusive rights to market them in India, Gulf and the SAARC countries. The new territories that are added to its fold are Europe, Far East, Africa and West Asia. This also includes the conversion of existing limited rights in the Middle East to complete ownership.

    In FY00, garment business contributed to around 20% of the turnover (the contribution is on annualised basis as this business was formally added to the company only in the last quarter of FY00). For the first half of the current year, the garment business constitutes more than 24% of Indian Rayon’s turnover. The company’s turnover for 1HFY01 was Rs 6.8 bn, of which Madura Garments contributed to Rs 1.6 bn.

    The Indian readymade garment market is expected to grow at the rate of 25% per annum. Of this, the projected growth rate of the shirting segment is around 40% per annum. Indian Rayon, with its strong brands in both trousers as well as in shirts, is well positioned to become the market leader in this sector. Even the export potential of this segment is promising. In the current year, readymade garment exports have gone up by 22%.

    Recognising the growth potential, the company has already opened Planet Fashion, the company’s multi-branded store, in the Middle East in the current year. Further, the company plans to increase the number of outlets, in the international as well as domestic markets. The move is aimed at consolidating its position in the readymade garments market.

    The stock is currently trading at Rs 88 at a P/E multiple of 8.1x the annualised 1HFY01 earnings. After touching a 52 week low of Rs 45, the stock has been one of the consistent gainers on the bourses for the last three months. Going forward, though prospects for its other main businesses like Viscose Filament Yarn (VFY), carbon black and insulators are not promising, we believe that the garment business will substantially increase the earnings momentum of the company.



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