Textile MNC

Textile was not a fancied sector by investors over the last few years. However, in the last 2 years, it has again caught the fancy of the market and quite a few of the textile stocks have doubled or tripled – Welspun India, Indo Count Industries, Trident and Arvind being among the top ones. It isn’t that these players produce everything that they sell as their brands. They have a set of suppliers to whom they outsource their requirements along with the designs and stringent quality specifications. Then it is these garment manufacturers who do all the hard work of manufacturing to the stipulated quality standards. So while the likes of Welspun and Arvind are players with strong brands, it would also be worthwhile to take a look at their suppliers. If these companies do well, it stands to reason that their suppliers would also benefit. This is exactly what happened in the auto ancillary market and these stocks, riding on the back of a Maruti or Eicher Motors who have done extremely well over the last few years, have given tremendous returns. Subros, Gabriel etc. are some examples. The same story could now unfold with textile sector.

In the recent market volatility, a lot of mid-cap and small-cap stocks have been beaten down quite a bit from their highs touched not too long ago last year. Among them is E-Land Apparels, an integrated  textile player, and an MNC to boot (a rare case of a textile MNC, and one which not too many would have heard of). It has been hammered from its highs of above 60 to below 50 now, more than 20%, in the current market volatility

This was formerly known as Mudra Lifestyle. It started operations in 1986 and is in the textile industry having facilities for fabrics & garments manufacturing, processing, design, development and sampling etc. It manufactures fabrics and garments for domestic and export market. Its product portfolio includes finished fabric, processing and garments – men’s, ladies’ and kids’.

The brand “MUDRA” has built a strong goodwill for itself in the domestic market and commands a premium. The company is gradually moving towards garment manufacturing mainly in the designer shirts and ladies wear segments to capitalize on the huge opportunity unleashed by the removal of quotas. It has positioned itself as an integrated multi product, multi-fibre and multi-market player covering the entire textile value chain at length. It ensures that its target market is a diverse mix of the domestic market, garment export trade and international market (exports) to ensure risk diversification and stability of earning. This integrated textile player has clients like Arvind, Raymonds and ITC in the domestic market for brands such as Allen Solly, Van Heusen, Elements, Lee, Excalibur, Arrow, Zodiac, Killer, Notting Hill, Wills Lifestyle, John Player and Peter England, and caters to Wal-Mart, Carrefour among others in the international market. It has production capacity of 5.4 million garments per annum in manufacturing facilities spread across 4 locations at Bhiwandi, Bangalore, Daman, and Tarapur.

This company was promoted by Agarwal family, led by Murarilal Agarwal, who held 54.5% stake. It came out with an IPO in Feb. ’07 at Rs. 90/share. But within a year, by Mar. ’08, it was quoting at 36, about a third of the issue price. However there were 2 interesting points to note at that time- the promoters, Agarwals, subscribed to warrants at a huge premium to the prevailing market price at @120/share, and the company had only utilised 9 out of the 86 cr. that they got in the IPO with the rest in the bank. That itself amounted to Rs. 23/share of the market price of 36!

Agarwals had aspirations to enter into the retail market, from being just a supplier to the big names, where big investments and deep pockets would be required, and were open to the idea of a strategic partner.  And this is where South Korea’s E-Land came into the picture.  At the end of 2010, they sold out to the South Korea-based $7-billion textile chain E-land, the largest fashion enterprise in Korea, a rare instance of foreign investment in India's textile sector. The whole acquisition was completed in 2011. E-Land is famous for strong brand equity, well-established fashion retail network with around 4,000 retail shops in Korea and same numbers in China, and strong management capacity with profound experience in fashion industry.

Founded in 1980, E-land had initiated franchisee model in South Korea to expand its retail reach before expanding into garment manufacturing. E-Land has more than 1000 fashion designers with fashion design being one of the most important valuable capacities for textile and garment business. E- Land is now successfully operating a lot of oversees subsidiaries in USA, China, Vietnam, Srilanka, etc. among others, E-Land China is a leading apparel company operating in China and one of the largest companies in apparel sales in China.

In Feb. ’15, Mudra Lifestyle was formally renamed as E-land Apparels reflecting its promoters. Post the takeover, E-land first spent the initial few years in stabilizing the company’s operations and financials. And the results are there for all to see. From a loss-making entity, E-Land is expected to make a profit of 20 cr, this year. So this appears to be a clear turnaround story and is at an inflection point for great returns once it starts generating profits. Once the turnaround becomes obvious, it will surely be re-rated and will be difficult to catch.