Zodiac Ltd

The market price of the company, which has a strong brand and healthy cash flows, is 10.67 times its EPS for the last four quarters

Zodiac has been in business for 50 years, and specialises in formal shirts at the upper price band. Owned and managed by the Mumbai-based Noorani family, Zodiac has a stellar board of directors, including Deepak Parekh (Chairman HDFC), and S.M. Datta (ex-Chairman Hindustan Lever Ltd). The promoters own 61 per cent of the company’s stock, of which about half is held via overseas firms, while FIIs hold 12 per cent.

Operations. Serviced by seven factories, Zodiac shirts are distributed through 1,000 ‘multi-brand outlets’ (MBOs), and 50 company stores. Distribution is company-owned, which makes for tight feedback loops, and MBOs are happy with the responsiveness of Zodiac’s sales team. Despite the advent of highly advertised brands like Allen Solly and Arrow, retailers commend Zodiac for the quality of its fabric and tailoring, and for staying ahead of the fashion curve.

Subsidiaries. Zodiac’s foreign subsidiaries handle operations in West Asia and Europe, including a shirt manufacturing facility in the UAE. In the last quarter, Zodiac’s subsidiaries accounted for about 20 per cent of its turnover and 35 per cent of its profits.

Performance 6-Mar 6-Jun 6-Sep 6-Dec Net sales (Rs cr) 58.6 50.65 63.72 72.89 PBDIT (Rs cr) 9.35 5.36 8.88 13.68 Profit (Rs cr) 6.42 2.84 5.14 8.14 EPS (Rs) 4.14a 3.4 6.15 9.74 a Unconsolidated

why buy zodiac is a strong shirt brand PAT has almost doubled year-on-year, from Rs 4.15 cr to Rs 8.14 cr Growing spending on retail

Financials. Zodiac’s numbers show a new dynamism. In 2004, Zodiac began to look for expansion overseas, and raised cash to fund new factories and operations. FY07 has begun to see these efforts bear results. The third quarter of FY07 saw a turnover of Rs 73 crore, up 14 per cent from the previous quarter, and 20 per cent year-on-year. Meanwhile, profit after tax (PAT) nearly doubled y-o-y, from Rs 4.15 crore to Rs 8.14 crore, yielding a net margin of 11.2 per cent. Earnings per share (EPS) for the trailing four quarters is Rs 23.42. At its price of Rs 254.75 on 5 April 2007, the PE is 10.67 based on consolidated earnings.

Investments. The company owns almost three per cent of the equity of Shopper’s Stop. This holding is currently valued at Rs 61 crore, which translates to Rs 73 per Zodiac share.

Bottom line. EPS for FY07 should be about Rs 26. Today’s stock price is less than 10 times this figure. If Indian retail spending grows with the GDP, this stock should see a fair upside.;
(Source: Internet)