Buy Dollar Industries Ltd For Target Rs.273 - HDFC Securities

Our Take:

Dollar Industries is one of the leading, branded knitted wear manufacturer in India. It has created a strong portfolio of brands (Dollar Bigboss, Missy, Force NXT, Champion, Ultra Thermals, Force Go wear) which has presence across varied segments. Over the years it has transformed itself from a mass market brand (86% of revenues in 2006) to a house of brands focusing mainly on mid-market and premium segment which as on FY20 contributed 43% and 24% respectively of the overall branded B2C revenues.

Going forward, the company’s key pillars for growth includes -1) Deeper penetration in its existing mass and mid-market brands like “Dollar” and “Bigboss” 2) Expanding its product portfolio in women’s wear brand “Missy” 3) JV with Pepe Jeans for premium and super premium segment has been already operational. It aims to use Pepe network and reach for scaling-up its presence in this segment 4) Redefining its business model through efficient allocation of resources and by cutting down its working capital. It has started project “Lakshya” with Vector Consultants for the same and post a pilot project, it is the process of gradually streamlining its supply chain and back-end operations. Going forward, it aims to extend this project across India, starting from Maharashtra, Gujarat & Telangana.

Valuations and Recommendations:

Post the introduction of GST and Covid-19 pandemic, we believe, low ticket sized branded knitted-wear as a category is all set to go through a structural shift. Dollar’s strong brand recall coupled with deeper penetration and consumers shifting towards affordable branded quality products are strong macro tailwinds for the company. We expect the company to record a Revenue and PAT CAGR of 6% and 20% over FY20-23E. Higher PAT growth is likely to be mainly driven by cost rationalization measures and debt reduction.

The stock is currently trading at valuation of 14x FY22E earnings. We feel the base case fair value of the stock is Rs 240 (16.0x FY22E) and bull case fair value is Rs 273 (18.0x FY22E) over the next two quarters. Investors can buy the stock at LTP and add on dips to Rs.176-178 band.

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