Wednesday, November 10, 2010

Cravatex is and will be a multibagger

I have not done heaps of research on this one but it does not require too much research.

Saroj Kumar Patni brought this stock into my attention on this blog. He is listed as one of the followers. I had rejected the idea because Cravatex sold one time use products like treadmills. I was also not sure of Proline brand being part of Cravatex or separate entity. There is no research report as of 11th November 2010, nor any institutional holding in it, which goes on to prove that retail investors like Saroj are miles ahead of institutions. This is why we, retail investors, have advantage over elephants which charge 1% in commissions and also front run their personal orders before buying for the fund. Funds will buy Relaxo after it crosses 1000 crores in turnover and atleast one other Mutual Fund has bought it, otherwise they risk getting fired. Our bane is,  we sell too early, have less funds but more ideas. Hippopotamuses have less ideas, more funds and greater greed and less guilt for losing other people's money.

I read news stories in last two months that it will bring in FILA products to India. It was not known at the time when Saroj sent me message to check out Cravatex, whether FILA will go alone and sever ties with Cravatex or will stay affiliated with Cravatex for Indian market. I recall having visited Proline showroom many years back in CP, New Delhi. They are openeing shops for FILA in Mumbai and my brother informed that they have opened two shops in Inorbit mall in Hyderabad.

It now looks like it will be part of Cravatex. I am both, unhappy for myself, because I cannot buy it, my money is locked in Photoquip and other stocks that I dont want to sell and happy at the same time for you and my father who bought some yesterday, very few quantity, couple hundred. I communicated to my brother yesterday to take a big bank loan to buy this share, don't think he will.

All in all, a lovely story, I regret to have missed out on. FILA sells over 1.5 billion $ worth of merchandise globally. In next 4-5 years they will sell 150 crores of goods in India. Net profit will be around 50 Crores in next 4-5 years. EPS will be 500 Rs, share price will be between 5,000 Rs and 10,000 Rs as its a trendy retail fever story. It could even be 20K. Enjoy folks. This is what I spoke about in my previous post as "Killing the BSE index next year" in one of my previous posts.

Keep your micro cap ideas posted here...and dont forget to thank Saroj K Patni. If you make a few lacs/millions killing after reading it here, please dont forget to donate atleast 500 bucks here

I have only spoken with management once, and few google searches. I dont have these shares in my personal account. Only couple thousand would be all my family members have this. So, I am not exposed to this yet but my plan was to switch to Cravatex from Photoquip with atleast 20% porfolio weight in 2011 but I dont want to do that today. I have missed the bus due to taxation and other reasons, no reason why you should. It should outperform sensex by huge margin.

Thing to watch out may be equity dilution and too aggresive retail expansion. Get rich !


  1. Hi Amit

    Whats your opinion on hitachi homes. It has fallen by more than 40% in last few days. Is it a buy now?

  2. Hey Akash,

    Never tried to look deep into Hitachi. But on re looking, all appears fine with company.

    Investor would take comfort if sales of other AC players are also flat during september 2010, or know reasons why sales for Hitachi in September quarter are flat vis a vis last year. An email to company should be sent to interrogate this, incase you dont know the reason, as I dont.


  3. I think a range of 50000 is possible in 5 years. There is no liquidity. Any ways thanks to all who brougth this to up.

  4. I am really confused to digest all of sudden a new candidate.
    No doubt seems hidden treasure and has great potential however need to dig into all points which we did in case of Photoquip.
    One is niche player, one is retails play.
    One targets few, one targets masses.
    One has few competitor, another has stiff competition.
    Both are licensed business. And both could be 20 times bagger, which one to choose? Amit, help, guide, mentor.

  5. Dear Rahul,

    I am a little big irked myself due to Cravatex being discovered so soon.

    Assume we love 4 stocks today, which are undervalued.
    With limited money if we invest 25% money in 4 investments and they all double our 100 Rs only become 200 Rs. But if we invest 50% of money in two shares they double, and then move money to another two shares and they also double, then money becomes 400 Rs. Thats why we don't want all the shares we love to rise at the same time. Problem is, its hope and not practical.

    Cravatex is a better franchise model, well known brand, but #4 or #5 spot, after Adidas, Nike, Reebok, Puma. But Elinchrom is in #1 spot.

    Personally speaking, we should see what your money is earning, if you invest 1000 Rs in Photoquip, you get 20 shares and your money is earning 200 (20 * 10 (EPS)) Rs per year.

    If you invest 1000 Rs in Cravatex, you get 2.5 shares and your money is earning 125 Rs (2.5 * 50 Rs) per share. Thats the story today.

    Second factor to look for is growth, Cravatex should grow well because it already owns 51 stores of Proline fitness in very upmarket places. They are the defacto Kings of equipment in India. Only since last 6 months, they have decided to expand FILA brand. The market for sports wear is 2500 Crore Rs in India, if FILA get 10% share then it will do 250 Crore Rs sales and definitely above 75 Crores Rs net profit, or 700 Rs EPS. Since this is retail story the crowd will go mad, like they have done with Page Industries (Jockey) and Titan, and madness can take PE to 50. Which implies 35,000 Rs share price. This is all within 2016-2017.

    Its important to know whether management will dilite equity or borrow from bank to expand. If their franchise model works, nothing like it. Coz they outsource all manufacturing unlike relaxo, and only advertise brand, so no fixed expense.

    If I were having Zero investment in both, I'd buy 50% each. I wish Photoquip / Relaxo performed sooner and then we put money on Cravatex.

    Mania factor will be towards Cravatex, both are evolving stories but for taxation reasons I am into Phtoquip, Cera, Globus Spirits etc. and dont want to switch until late 2011.

  6. My Brothers research yesterday,
    I went to a FILA outlet yesterday. It’s on a very prominent route and I never stopped by because it is not that big and there are much bigger and better looking reebook\nike\adidas stores around. Anyways, I thought I will have a look at the stuff and figure out if this is the kind of stuff young and high earning folks would like it and like it enough to buy it. I liked one pair of sneakers so much that I ended up buying it and that too for 2100/-. A similar nike\adidas sneaker would cost 3500-4000. Actually, first I just liked the look of sneakers but after wearing them, I found them so comfortable that I ended up buying it. I bought a similar white nike sneaker recently for 3500/- and that is not half as comfortable. Hence, I was more tempted to buy it. I have attached a few pics of the sneaker and also a pair of socks. Pair of socks cost me 115/- which is in the same price range as nike\adidas. The socks quality looks as good as them and I would like to try it for myself to see.

    So as I was checking out stuff, I was talking to the salesman who was pretty courteous and was also wearing FILA sneakers himself, which is a good sign. Here is what I learnt:
    - The store seems to be doing fairly well, business is ‘picking up’
    - The store is a franchisee store. In fact, it’s owned by a guy from Bangalore who is a distributor of FILA . They have another FILA store in himayathnagar, which is basically other end of the city.
    - The store was also carrying stuff from numero uno.
    - The sneakers are actually made in China.
    - He was aware that FILA is planning to open up stores in India.

    Notice that price label shows these are manufactures by some company in China and are imported and Marketed by ‘Cravatex Ltd’.

    The shoe is good looking, sole is good too and it is very comfy. For 2100/- , it’s an awesome deal. The only thing going against it is a very average looking store from the outside. It is not as swanky as a nike\adidas store.

    Next I need to talk to Proline Fitness store. I noticed another Proline Fitness store in Somajiguda, which is the priciest location in Hyderabad. And it has been around for at least 5 years, which means the business is doing good and they can afford the rent.

  7. These links drove me into Cravatex:

  8. @ Rahul

    Where Cravatex scores is volumes, where Elinchrom scores is sheer moat of brand. This is what I wrote earlier...but one needs to be sure of betting on #5 player than #1, hard choice. But since FILA is just begining to introduce apparels, worth keeping eye. One could keep shifting between top 5 portfolio weights depending on who is growing faster...

    Search for these phrases in google, "I LOVE ELINCHROM"


    Its something artists crave for and would not compromise on. Difficult choice.

    Risks are slightly higher with Cravatex and so are rewards.

    Risks are lower with Elinchrom and rewards are as great.

    My thinking is I can always switch after 2 - 3 more quarterly performances. If Cravatex expansion works and stock reaches 1000 Rs we should not hesitate to it is also a decade long story. However, competition is obviously intense in Cravatex's field.

  9. Dear Amit,

    I might be looking to other readers like singing Amit's music by talking in the same tone but what to do if I am also catching same frequency these days. And its really a coincident which I want to share wrt your comment on "My Brothers research yesterday":

    Actually I got some ankle pain problem and there after I was looking for some nice sports shoes which should be rough and tough and must be comfortable.
    This is time I decide I will choose what I like most, rather then going by what people sales, What ever I have to do for that. I visited almost 5-6 stores and shopkeepers offers me Reebok/Adidas/Nike etc. I tried if woodland have something on this. But then I visited one well know shop in Deccan in Pune, and after all rejection sales person showed me FILA shoes. I bought those in 10 minutes.

    So bottom line is If Cravatex can expand business without much equity delusion/debt and can retain exclusive license for FILA, then that "Conviction" which I talked about is not far away.
    Any thoughts?

  10. Dear Rahul,

    My learning is that Debt within limits is far superior option to diluting equity almost always, except when shares are very very expensive. So that company offers its shares to public for a very high premium. I am presuming Cravatex is likely to go with debt.

    Another aspect with retail stories is that they should not expand too fast, otherwise they become like Vishal Retail or Subhiksha. Peter Lynch elaborates that very clearly in One Up On Wall St.

    Some useful links:

    Don't worry about retaining FILA licence, its perpetual and Batra's are co shareholders and there was a management buyout of FILA in 2008. So Cravatex will not lose FILA licence ever unless they choose to sell it or not able to run FILA business profitably in India. FILA cannot snatch licence and Batras are co owners. Some royalty arrangement must be there with SBI group of Korea.

    Read this Link and read about Rajiv Batra:

    If Cravatex earns more money with FILA, and their retail expansion does well through franchising then add more to positions over coming quarters. Since Cravatex has no fixed expense, neither factory for making apparels/shoes nor rent for shops. It does not matter if stock goes to 2000 Rs if earnings per share go also go to 150 Rs in 1-2 years, we should still keep buying as long as future looks rosy, unless there are better alternatives/companies to buy.

    Kind regards

  11. Amit - Few points:

    1. I guess Cravatex is not the exclusive license holder of all FILA product. If that is true, it could be for shoes only. The link from you talk about apparels and accessories and sales of ~ 125 crores by 2013. See also link below:

    They also sell products of Dunlop sports and Nassau(a Korean brand).

    2. Main business of Cravatex is fitness equipments and they owned most of the stores. However competition is real tough as almost all the international players in this field are present in India directly or through Indian partners. Profitability of biz will depend on business model, which can not be assessed with the minimum details in AR or details available on web site.

    3. Main growth in bottomline is due to the closer of textile export business, which was making losses. If I remember correctly, toplines grew by~13-15% for last 5 years, while bottomline grew by ~35%. I am not sure if they will be able to maintain such growth in bottomline. Sportswear sold at Proline stores are manufactured by them.

    4. Management / promoters are not minority share holders friendly. They own 75% of equity and do not care about minority share holders. Minimum details in AR suggest that.

    5. I read somewhere that they operates SPA centers also. In addition to services, trying to sell beauty products also.

    Having said that - I think they will be able to maintain decent growth in future. Liquidity is a problem and "Operators" can manipulate the price, as it is being done in last 1-2 months.


  12. @Saroj Kumar Patni

    Dear Saroj sir,

    Please allow me thank to you for bringing this potential Hidden treasure to us. Sharing knowledge with others is the attitude that goes beyond words of appreciation.

    Would love if you can share your blog url with us so we can know more about you.

    And thanks to Amit for sharing this one to us.
    Let dig more into this and keep a sharp watch.


  13. This company is listed as suspended share at

    is this company investor friendly? Is it safe to invest here?

  14. Dear Prashant, Bhola and Rahul,

    Thanks for your insights, I was not aware that they were making losses in textile business, as I did not do much research into financials. Some Proline shops have rent of 10 lacs per month, so money must be made in those shops...

    I am happy to ask questions if you list them in detail here. When I did call them, I was told that they have recently started concentrating on FILA business, all FILA sales in India are through Cravatex unlike you see with Procter and Gamble or other MNCs which also run a private company side by side.

    Shareholder friendly: This is something we need to judge together, thanks to medium of internet. I agree company speaks minimal in ARs. But 75% holding or delisting does not imply shareholder unfriendly. Managements which give 3 Rs dividend when all they earned is 3 Rs 20 paisa cannot be considered shareholder unfriendly.. (eg: 2006)

    Only in last two quarters have the results started improving due to new business.

    Another caveat from Peter Lynch: You can skip first two years of retail companies, let them prove that their formula works in one state, if it does, then they can successfully apply same formula in other states. The learning is to let company prove itself, watch for retail stores, sales and profits, and only allocate more percentage as things keep improving, until then give it 2% portfolio weight.

    Let me know your questions and I can clarify some. I found them very friendly by phone unlike Relaxo company secretary, or Wim plast company secretary but I also absolutely trust those two companies.


  15. @ Prashant,

    As per your link below, Rajiv Bajaj is an employee of Cravatex Ltd. I am sure when I spoke with Cravatex, new business for FILA would be under Cravatex.

    My whole logic for buying is that these new FILA stores are under Cravatex and all sales/profits will show in Cravatex's financial statements, let me clarify again from management.


  16. Please see this link,

    "Cravatex had bought the India brand license around a year ago."

  17. Rajiv Batra was CEO of Fila Europe, his brother Rajesh Batra is owner of Cravatex

  18. Worth reading about Proline and its alliances

  19. One more word about management friendliness, I have heard no management give me a call back. When I rang them and person was not available in office I was told "For our shareholders we are happy to answer and reply on your desired medium". Nobody has agreed to call me back in New Zealand except Cravatex and Parikshit Suri (Photographer)

  20. Amit - I am bit confuse on the over all business Batra's are doing and what is part of Cravatex. AR does not specify the business / brand part of Cravatex.

    My understanding is:

    1.Proline Fitness is 100% part of Cravatex.
    2. FILA shoes are part of Cravatex.
    3. SPA centers / equipment are part of Cravatex.
    4. I am wondering why Batra group invested directly in FILA instead of using Cravatex (probably because of Rajiv Batra????).
    5. Proline India (retail operations) are not part of Cravatex. This is the joint venture between Batra group & Bombay Dyeing. Not sure how Cravatex is part of this biz. I guess FILA apparel are part of this biz also.

    I have basically following questions, if you are calling them:

    1. What are the Batra gruop bizs part of Cravatex? A clear structure will be useful.
    2. Business model of each biz.
    3. Are all biz stabilised or in growth phase or ???
    4. ROC / profitability for each biz
    5. Future plans in term of capital requirement for growth
    6. Current share of each biz in Cravatex (top & bottom line) and expectations in next 5 to 10 years?


  21. Hi Amit,

    You have struck another gold mine.
    I have one more Gold mine.....That is DELTA CORP.
    This company is sitting on 3 Casino license out of 6 issued by Goa Government.
    More than that their gaming business is picking up like anything.
    I think this one is going to be a big multibagger in coming days ahead.
    The other best think is no other listed company operates in this space which makes it very difficult to value to, it has created a niche for itself.
    And above all RJ and R Damani have recently picked up stake in it which has given it a trigger.


  22. Amit - on Minority share holders friendliness - I missed the dividend payout. That's correct - they are increasing the dividend every year - a positive point.

    However, overall organisation structure seems to be complicated for me, hence the doubt.

    Disclosure - I have a small position on this counter.

    I did send e-mail to them for information - still not replied - even after reminder.

    Another issue - they have been in & out of few bizs (textile and dyers and dry cleaners) - so I was not pretty sure if they will be able to manage this new biz successfully.

    I Stopped buying when quote gone above 250, due to above reasons.

    Once doubts are clear - I can better estimate the IV and take decision on increasing my holding.

    Anyhow - thanks for sharing useful information.


  23. Dear Prashant,

    Fully agree, when in doubt stay out. I will share results of my finding in shops here in Wellington, NZ today.



  24. Dear Vikas,

    Your stocks make a rocket every now and then. Please enlighten us with Delta Corp. How have their September results been so spectacular ? This stock became so famous, therefore my mind had completely shut it out, and I did not bother looking at website let alone financials.

    Please let us know more on business.


  25. @Prashant,

    I will trying asking questions this week.

    I stayed away from TV 18 as if it had leprosy, due to very very complex structure and was proved right. Top guy, Behl was only a financial engineer.

    Second time I was able to keep off noise was when everyone was condemning TTK Prestige in 2009 for delisting and praising Hawkins Cooker for being friendly. I bought both and it worked.

    Let me try get some answers for you, I would not be very bullish on Cravatex if FILA apparels are not part of Cravatex.



  26. Amit and Readers of this blog.
    I would appreciate all, if they can share info about:

    1) How we can approach company for questions?
    2) from where to get AR?
    3) Whom to contact for asking business related question like "Exclusive license" etc
    4) From where get those contact details?

    I know few stuffs however just want to recheck so I also can start thread with Cravatex management and can share my experience here with you guys. I checked BSEIndia but it does not have news release from Cravatex about license and all relevant information for us.

    Please bear with me.

  27. Amit,
    Thought this would be useful. I am in Bangalore on a short visit and decided to check out the Proline store nearby in Jayanagar. There were 2 more fitness/gym equipment stores (Stayfit and BSA) adjacent to the Proline store and they all seem to be doing decent business. From an aesthetic point of view Stayfit ( was looking the best followed by BSA and Proline was last.

    I went to the Proline store and enquired about the Threadmill which they had advertised for just about 15K. It turned out this one was a company owned store (visting card mentioned Cravatex). The sales person was very friendly and demonstrated the product very well. I asked him about after sales service and maintenance and got a firm assurance that service person will attend you within 24 hours of the call. Most equiment in the store were under the Magnum brand which I was told was another brand under the Proline umbrella targetted for budget seekers. I had been to the same store a couple of years ago when my brother wanted to purchase an elliptical trainer and we had then found out that most products were manufactured in China and imported to India and sold under Proline brand. I asked him about this and questioned how durable were these chinese manufactured products. He acknowledged it was china made but mentioned that they were made to the design and specifications given by Proline.

    I also had a casual chat with the sales guy on the proline brand and the business in general. He spoke with pride about the company being the only one in this space being listed on the Indian stock exchange. He also touched upon the company's association with Fila, Bombay Dyeing/Vivaldi and Band Box (Dry Cleaning Service). The mention of Bombay Dyeing took by surprise as non of the publicly available information talks about this and there is no clarity on who owns what and how much of it.

    Discl: I am not invested in this.

  28. Dear Rahul,

    I would suggest to call up this number (listed on BSE India, 022-66667474 ) and request them for Annual Report, it should come in few days at your residence.

    Talk to company secretary,

    If someone is in Mumbai, then even a personal meeting with Vice President can be arranged, they will not hesitate to meet in person with investor/research analyst.

    Let me try to find all I can this week. Lets take it from there...


  29. Hi Amit,

    Delta Corp is into Real Estate and Gaming business.
    They have 3 casino operating license in Goa out the 6 issued by Gov. of India.
    Apart from that they have real estate business in Africa ( Kenya).
    RIL and ICICI ventures have a stake in this company.
    They are looking aggressively to expand their Casino business in India...with other locations as Daman and Sikkim where Gov is planning to issue license.
    And on the Sept 10 results....the huge rise in EPS is because of the extraordinary income which recently they sold their property in Mumbai.
    Currently they are planning to open a casinos in SriLanka...where 2 days back the Gov. has paved way to allow casino's in Srilanka.
    The only concern is equity dilution....but i am not worried much on the as currently the company looks Debt free after their recent sale of mumbai property.


  30. Dear Vikas,

    Thanks for your time and explanation..

    Hope to read on Casino's sometime in future, I have no idea and never applied my mind in Casino Business as yet I don't belive in lotteries.



  31. Last month I mailed them asking for annual report although I had it before hand. I waited for a day to get a reply of my mail but did not receive it. The 2nd day morning I received a courier from Blue dart which had an Annual report of Crav. I was shocked and extremely happy to receive the report is such a short duration from them !! Does this qualify for "investor friendless"

  32. Guys,

    Any news on Cravatex it is down from 800 to 250!!


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