Recommendation from Textile Sector

This column gives you a scrip chosen by the research team during the fortnight that is fundamentally strong and expected to give good capital appreciation over a time period of 1 year.

FAZE THREE: TAKING TEXTILES ACROSS THE GLOBE

HERE IS WHY
✓Strong brand presence
✓Ambitious expansion plans
✓Assured global business

Textile remains one of the oldest sectors in India and leads to the production of a wide range of products that are suitable for various market niches, both domestically and internationally. Amid the recessionary situation in the US, the UK and Europe, the citizens of these countries have muted their spent on discretionary products due to which the demand for affordable clothes and related products has grown significantly. This comes with an opportunity for an Indian company engaged in the textile sector, Faze Three Limited. The company has a strong presence in the affordable segment with a price range of USD 15-25. 

To cater the growing demand, the company has also been increasing its production capacity quite aggressively along with diversification of its product portfolio. Established in 1985, Faze Three is primarily engaged in the manufacturing and exports of home textile products items like bathmats, rugs, blankets, throws, cushions, etc. The company has diversified its product mix across categories in the home textile segment and is also a direct exporter to top retail store chains in the US, the UK and Europe.

The company has three business segments: a) home and decorative textiles under which it manufactures and exports a wide range of home and decorative textiles such as bath mats, pillows, rugs, kitchen supplies and curtains, b) automotive and technical textiles under which it manufactures automotive seat covers and outdoor furniture textiles, etc., and c) divergent textile products that takes care of several divergent textile products such as face masks. The company exports its products to the top 50+ retailers across the globe.

Some of its top clients include Walmart, Costco, Argos, Marks and Spencer, Zara Home, Calvin Klein, Target, and others. The company’s strong partnership with its distributors guarantees assured business. It has invested over ₹120 crore from internal accruals across several units for expansion, installation of new machinery, implementation of new technologies and de-bottlenecking in the last two years. The increased facility will give the company an extra edge, reduce costs and help cater to higher demand.

The revenue of the company has been growing at a CAGR of 24 per cent in the last three years. It has delivered an operating profit margin of 16.9 per cent in Q3FY23. In FY22, the company posted an operating profit margin of 16.30 per cent, indicating a slight improvement in its operating margin. The net profit margin was 10.1 per cent in FY22 and 10.7 per cent in Q3FY23. The company delivered flat results in Q3FY23 with an increase of 4 per cent in revenue on YoY basis which stood at ₹133 crore while it decreased by 2 per cent on QoQ basis. 

The company’s stock is currently trading at a PE of 13.3 times, which is above its long-term average. Faze Three’s return on equity and capital employed are at 20 per cent and 20.2 per cent, respectively. The company has a strong balance-sheet with debt to equity ratio of 0.59 times and reserves of about ₹285 crore. We are expecting the company to deliver good results in Q4FY23. It is well-positioned to take the advantage of growing consumer needs in the affordable segment. Given the robust business outlook, we recommend BUY.