Background: Textiles is a very booming sector with many interesting hosiery and Apparels plays, though most of the companies are plagued with high debt and pathetic cash flow. Therefore, we should always be on the lookout for companies that are niche plays with good, strong, ethical and ideally conservative managements with strong financial profile. Spenta International is one such budding company.
The Company: Textiles companies are known to be cash guzzling companies with huge piled-on debt and cash flow problem. Therefore, in this space if you get a cash rich company backed by a strong and ethical but conservative management and in a niche space, it would ideally be a non-brainer investment. Further, if it also is into a branded space, it would add to the sheen of the company. Spenta International (Spenta Socks), is one such cash rich company which is into manufacturing of “Socks” and is known for its high quality socks and has therefore, not lost any customer in last so many years. Company has a manufacturing facility in Palghar on a Five acre (company owned) land parcel. Spenta is supplying socks as white label to most of the retailers in the country and boasts of customers like Reliance retail, Future group, AB etc. Since everything is sourced and supplied locally there is virtually no risk of currency fluctuations, though company is exploring options to export its products which can improve its OPM significantly. Furthermore, unlike other textile companies the company does not experience any Chinese threat which is a significant plus. The company has also started improving its Operating Margins in the recent past. Most importantly company has also launched its own Brand of “Spenta Socks” a few quarters back which is getting good reception in the markets and it has been selling its branded socks on all the major e-tailer platforms. The company is planning to emphasize very strongly on promoting its own brand in coming years and has experienced “very good” reception of their product thus far. At the moment the stock is available only regionally (w.r.t physical stores) but they plan to launch it nationwide in coming future. Realizing the potential of the products and traction that Spenta has started seeing across the industry, there has been a conscious and significant change in the attitude of management towards shareholder wealth creation. Therefore, as a first step last year, they had a share buyback by which they reduced their outstanding shares. Also, this year they announced their maiden dividend and the promoters have clarified that in future they will consistently pay dividends. Furthermore, its important to note that the company has a very small equity base with high promoter holding. In the last couple of years the promoter holding has increased from around 52.9% to around 64% (with no pledge) out of which 4% was bought in the last month from open markets at a price even as high as early 90s. Clearly promoters are seeing much better days on back of growing business and incredible acceptance of its newly launched brand of spenta Socks..
Valuations: The current market cap of company is just around 32 cr and is available at around 9 times FY16 PE whereas other branded apparel companies are trading at sky high valuations. The company has a cash of around 6.25cr which is around 20% of its market cap alone. The company has superb cash flows and has now started paying liberal dividends and as noted earlier the management has stated that they will “never” discontinue dividends. Spenta has reduced its debt by half to around just 0.75cr in last two years. The company intends to become debt free by this year. The company’s own 5 acre land out of which the present factory occupies around 2.5cr and therefore, the company has enough land for expansion as and when required. The company delivered a Q1FY16 EPS of 3.38 vs 4.53 delivered in the entire FY15. The Operating profits also more than doubled YoY with revenues growing to 10.17cr from 8.24cr YoY. Spenta is expecting 15-20% topline grown for the next 2-3 years with improvement on OPM, on back of surging demand from the retailers for supplying white label socks and most promisingly increasing share of its own branded Spenta Socks.
Technicals: The stock is backed by superb technical setup and is close to its all time highs. By the way the stock made this all time highs when the markets were crashing and going from one low to another. After a bit of consolidation the stock has started to make another move and is now slated to go much higher in short to long term.
The Textile companies are coming out of their shell after a multi-decade hiatus. Here we have a cash rich, dividend paying and niche textile company which is on cusp of explosive growth and has tremendous cash flows with low equity base. The company is backed by a young and energetic management that is evolving with time. The launch of their own brand and the acceptance that it has shown is a clear indication of the bright days that the stock can see. The stock is low equity and thus volumes are low so its important that if one decides to go for it, they keep it for the long haul and most importantly those who decide to be part of it, should try their products too…
God Bless !!!
http://www.spentasocks.com/index.html
Disclaimer: It is safe to assume that I may have some vested interests in the stock. Also, the above stock view is my personal view in individual capacity. For rest, please look at the About page.
aceinvestortrader 
Ultra micro cap company of just market cap around 30 crores very interesting will study it tomorrow. Looks like one of the boring business. But as the legend says wealth is created in the boring business.
Thank you for the idea ace bro
sure.
Great pick, Ace! 🙂 ‘At the moment the stocks are available..’ I think I spotted a typo there.
k
Was my comment offensive in any way, Ace?
didnt get you…
No I thought I had, looking at your response.
ok
Hello Ace ji—Thanks for the idea—looks like its a good company , however what is their future plan? if the company plans for growth in near future then it might give multi fold returns with the OPM is also improving with exports——-will ask one question though——from packaging sector I am checking two companies 1. Kanpur Plastipacks 2. Emmbi Industries——which one looks better in your honest opinion—Thanks.
they are looking for atlest 15-20% CAGR with improving OPM for next 2-3 yrs atleast as they are seeing great demand for the white label and also for their own branded products.will add this to stock story as well.
20% CAGR with improved margin will contribute hugely to the bottom line and it should give multi fold return —–Now only concerns remains is will we get the share? last 5 day avg. volume is around 500-900, so anyone looking to add 500 shares might have to add for several days—–however on last Friday volume gone up to 2,000 which is good sign—lets see if it can generate some good volume then it will be great———Thanks again for finding this small company which has bright potential to become medium/big!!!!!!!
such small equity base stocks always have lower number of shares trading…. floating stock is less right…that’s why..
Thank u sir for the gem.. now i hope the market gives us the opportunity to buy it on monday 🙂
Please give your opinion on Duke offshore. Mgmt has recently given dividends and received Annual Maintenance Contract from Defence Ministry
no change from previous opinion
Hi Ace,
I am not aware of your previous opinion on Duke? Can you please elaborate?
google the blog.
Ace,
Nice find sir but have you noticed they using American polo as they logo on men sports socks? Are they stealing the brand logo which could get them sued.
How big is the fake socks market industry?
Secondly the management has been promising dividends since 2009, whats make you confident this time?
what i have noticed is the sad mindset of indian investors to brand every small cap management as chor without researching or anything. American polo is one of their customers – have you read the stock story where i mentioned “white label” stocks. This is what it means, it supplies socks to many branded apparel companies so its perfectly legal for them to display that photograph on their website. and NO the management has not been promising dividends since 2009, let’s not put imaginary things on public form. What makes me confident of dividends in future is that i would like to trust what management had to tell me. Go and look at their factory and talk to their employees to know more about management rather than accusing a budding entrepreneur with your imagination.
haha
sorry to interrupt, you met the management ?
have you read the stock story?
Wishing you all to get benefit from this stock as usual…!! Tnx for this recommendation Mr. Ace..!!
sure.
Thanks for your new pick ace….
I found this blog very recently and now following all your updates regularly. Thanks for suggesting this new story. Surely looks promising. Thanks once once again for the great work by helping ppl to create wealth.
Nikhil
great if it helps
Sir,
Thanx for new pick……
American polo is one of their customers means socks manufacture by spenta and distributed by american polo?
yes, that’s what white label means.
thanx sir
Ace ji – a minor observation, under annexure to auditor’s report, disputed statutory obligation of 48+ lacs is o/s. Any further insight on this ?
company is strongly contesting it infront of the IT tribunal. So, we’ll come to know once that is finalized. Moreover its a minuscule amount when compared to the cash on the balance sheet so i am not really worried about it.
Oh ya, issue gets dwarfed by the potential triggers that are in the making for this co.
I would love to own this business.
right.
Thanks ACE for the new pick.
Though the last 5 years’ growth isn’t too exciting, but investment decisions are best made keeping in mind future growth and not hindsight.
I
right, what matters is not Trailing PE but forward PE….and this means the future not the past.
Thanks Ace long time since u have up with something .god bless raj
🙂
Thank you very much for this New Gem !
sure.
Just looked at sept SHP of Deccan gold, promoter stake shows zero.. Not sure if that’s a reporting error
not seen it but clearly the promoter stake cannot be zero …they had more than 40% stake…
Thanks for the new find Ace bro.
A quick look at their FY 2015 results shows a slight decline in sales when compared to 2014. Were you able to understand the reasons for this?
Thanks
last year their focus was their own brand sale and so the white label volume took a hit, although this was done deliberately company quickly realized that they cannot sacrifice volume… they are rectifying it now and hence they are now seeing around 20% growth this year….furthermore, with expectation of their own brand gaining further expectations their OPM should improve.
Ace
I have talk with company secretarty Mr. shetty last month in which I asked that company is saying at their site they are largest exporters of socks from India, but in balance sheet they are not showing any dollar earings, in reply he said that they are earnings in rupees as they are selling to large trading houses who are selling to big brands internationally, so their products are going large brands international through trading houses, now they may explore exporting directly
right.
If they remove this layer, few more %’s can be cornered on the margin front.
no doubt.
Another gem!!!
that’s the expectation…
Dear Ace, What are the other companies that are in white label socks business and how are they faring? Is Spenta the only one supplying to its customers? Pardon me if I missed to read this in your story. Appreciate your service as usual.
spenta is by far the biggest one and most of the companies are very small and privately held.
Hi Ace,
Your view on Repro India?
decent for long term
Sir, cud u plz say ur view regarding Deccan gold
Sir I am holding sharp, what is the present status, is it good to hold, advice me
what does your conviction tell you?
ace – how do u think of transportation corporation of india – u think demerger cld create value with gst, fuel price, ecoomerce and improvement in economy could be triggers
demerger is a huge positive.
Dear sir, I’m sitting on about 30% losses in Jain irrigation, motherson sumi, OBC… Could you advice me a wise stock option wherein I would be able to make for all my losses by putting in fresh capital. Also advice me if I need to sell these loss making stocks and invest the same in any other stocks? Your guidance will be highly appreciated.
all your stocks are largish caps. i dont like them normally. try to get into quality small caps that are mentioned on this blog. try to pick the stocks which you understand and have conviction.
Thanks for responding sir. I appreciate your efforts. I would be grateful to you if you could suggest me a model portfolio with 4 lakhs rupees investment.
sorry, i dont do portfolio management. would suggest you go get a professional.
Will start researching about the company…thanq 🙂
sure.
Another stock in the textile space, Riba Textiles, seems interesting as the company is planning to increase it’s production and that should increase their revenues and profit. Promoter shareholding is also increasing. Debt is low. What do you say about this stock?
no change from previous opinion
Could not find your previous opinion. Can you please guide me how can I find that?
use google on the blog
Tried “riba site:aceinvestortrader.wordpress.com” in google and “riba” in the search box on this page but did not get any search results.
it should have shown you something ideally
It does not. You may also try that. It will he helpful if I can have your views on Riba. Thanks.
sir have u ever recommended riba ?
strange question? why?
any view on prima plast?
thanks a lot. any view on tulsi extrusions, jet king, hittco tools?
tulsi not interested, jet king not very confident as of now and hittco no change from previous views.
Vidhi made a new high of 72 today…Cheers!!
🙂
Vidhi is all set to do a Cupid …….Cheers !!!
🙂
Sir how is fairdeal filament
no change from previous view
It is time to average in Deccan gold or should be wait for some more time. currently its corrected 50% (after considering rights @ 17 ). I am convinced about the business but also understand that the journey can be loong.
Thank you for sharing such ideas …… you are proving great service to retailers who seldom make such good money. as in this side (invested in Cupid , Vidhi , V2 etc:)
Thanks again.
you would have known if you were regular on the blog.
I know – it is 50% or more, but still seeking you expert opinion. Remember you were bang on on Cybertech (and I missed the bus) , probably as you also look at technicals.
Your guidance is a confirmation on our learnings 🙂
please search the blog, cant keep on repeating same thing day and night.
Monthly Chart of Low hanging Fruit AIMCO Looking just as Waterbase did few months back !
The only seemingly concern is , Does economic problems in Brazil affect the performance of the company? I feel like accumulating the stock ! Your suggestion plz ! Thanks !
i dont do portfolio management. you should act according to your conviction.
Ace bro, do you see any impact of Trans Pacific partnership agreement on Ambika cotton and Spenta international as well? According to an online report it has been mentioned that companies with textile and apparel exports could face potential risk from Vietnam..Your thoughts.
no, dont think it as a problem…. a few years back, taiwan, Indonesia and malaysia was threatening india’s software industry and now they are nowhere to be seen. Also, i have read a lot of interesting articles suggesting how indian companies would actually benefit.
Hi ace,
googled your blog (not sure if i googled it right), could not find ur views on godavari drugs.
thank you
its decent as mentioned earlier. pls learn the art of googling… its will be helpful in other spheres of life as well.. its a great tool 🙂
Ace Sir .. need view on DHP .. holding since your recommendation with patience.
Any updates in your view sir ?
no change.
Dear Ace,
I couldn’t able to buy today as it was at UC when opened. Till what price we can buy?
Can we buy Rajoo and Riba Textiles currently? Is the fundamentals are still intact.
Any other stocks from your previous recommendation.
Thanks a lot for your hard work and guidance…
as long as you yourself are comfortable with the price and see value in it…
hi
sir
Once again superb pick .technicals looks good as co goes 52 w high ……..freeez not likely to open upto 150 (assumption made due low liquidity) ….till that time 2 nd qtly results …ohh god .
only superb timing……….timing of posting stock is again superb….
thanks….
hello there…long time 🙂
Sir,
i think spenta will fly like orient bewerag . both are low share capital !
what matters is the the long term wealth creation and not play for just 40-50% upmove.
Sir,
Your view on Orient beverage is same as previous……
Why circuit limit is at 3.83% in spenta today when general circuit limits are 2%, 5%, 10% or 20%.
these kind of things should not matter investors…not bothered.
I am not bothered but I want to know if there is any change in rules or any rule which I do not know but you may be knowing.
yes, it is. one can easily find all this by going through bse website.
Panyam on a roll, Ace 🙂
🙂
Hello Ace. Your views on SKS microfinance results? Can I make a new entry now into the stock?
depends on your conviction…. results were good no doubt
Thanks a lot for your reply. I will analyze it tonight and hopefully make an entry tomorrow.
ok
Any views on Rane Brake Linings. Valuation seem to be good. Demand for products should increase in future as number of total vehicles in the country is increasing and one needs to replace brake parts after periodic use.
rane is average IMHO
Sir, i don’t think circuit is going to open before 150 considerig so much low volumes…lets wait and watch anything can happen 🙂
Do you track Enkei Wheels? mkt leader in aluminum alloy 2&4 wheels and had a cash EPS of Rs. 20.68
decent
Ace ji
Requesting your views on Umang Dairies. Thanks
no change from previous views
sir, ur views on Lawreshwar polymers ?
decent but not comfortable at these prices
hi ace your view on xchanging solutions for long term
no change from previous view
hi ace are you tracking capital trust and nirvikara papers
no view
Hi Ace,
Any view on HCL infosystems. I read somewhere, that they are hiving off the loss making division and will try to turnaround to profitability. Last week RK damani’s investment arm bought 11lac shares in it.
Thanks and Regards,
Vinay
if it happens it would be very positive.
Ace, your take on ANG Industries?
sorry not too keen on it.
Congratulations sir.. all ur picks firing.. interestingly.. they take turns but eventually when u look back each stock has its day.. panyam, associated stone, gujarat themis.. god bless u and all of us.. 🙂
good if it helps
Try ur luck upto 30 oct price will remain same…
chance for those who do complain every time that we are not getting shares …..
still 7 days left……..
god gift ( by ACE sir)
after that upmove till Rs.140/-….(as per new rule)& so on on on ….
superb superb
try try try
you are the only one who figured out this…yes the price would remain the same. one reader had asked in the morning why the circuit was just above 3%…different than normal circuit filters. as you rightly pointed out now it would remain the same because from Oct the bse only listed shares have come in a bse filter system which decides weekly monthly limits also apart from daily limits. hope we all as investors are more in sync with rules and regulations governing our investing lives….
Thanks for the Spenta recommendation. i already bought some shares in the last week on Thursday. but could not add more now.
Sir, What is your outlook on MRSS? (Majestic research)
not interested in it.
Hello Ketan – how did you find the stock – i mean i use some screener filters but never found this gem – not that one needs to chase only gems but would be great to learn how others go about finding such
ketan? who’s ketan 🙂 looks like you dialed a wrong number
ha ha 🙂
Hahaha stress releived
No, Rainmaker posted a question to Ketan as Ketan had already found this gem and invested in it. hope its clear.
ok sir.
Thanks KK !! ..
How is Umang diaries business sir?
Rgds
no change from previous views.
Your views on Samtex Fashions, Amarjothi Spinning Mills, Sterling tools, Sambandam Spinning Mills and Sarla Performance Fibers and Sri Lakshmi Saraswathi Textiles (Arni) and Shiva Texyarn?
tell me why you like these names and we can take it forward …
Because these are from textile sector and hold by anil goel
but why only these particular names…there are several other names
Dear Ace, your views on Alpa Labs!!
not happy with management for not sharing a piece of cash with minority… so i am not interested in it.
Thanks for replying Ace!
Any views on Shekhawati Poly Yarn. Stock seems to be undervalued.
not too keen at the moment
ur views on Danlaw Tecnologies Sir
decent
I am invested in Sahyadri and I know you also like it and had recommended it.
Looks like Harimudra Securities Pvt Ltd and Mahesh Kumar Singhi have sold their stake as per Sept SHP. Hope all is well. Do you have any further insights?
how does it matter if an investor buys or sell a particular stock? its not the right approach for investing
Panyam – immensely strong 🙂
🙂
Great result by Mangalam – Again a great pick of yours.
yes, results are extremely encouraging.
Ace, your view on Mangalam Drug result?
have just glanced through numbers but it looks very good
Sir, what is ur take on DIC India.. Disc: I googled the blog.. but saw no opinion of urs on it..
its one of the better turnaround companies.
Sir i have invested in merck at 759 .pls share ur views on merck.
its a decent company.
Ace ji – Mangalam rocks.
Finance cost heads south, QoQ and YTD basis
PBT more than doubled on qoq, humongous jump on YTD (half yearly) basis
EPS leaped substantially on YTD basis
LT borrowings are down by 15/16cr
Trade receivables has gone down almost by 21cr
With this kind of eps if market values it in the range of 20 to 30 times then the stock can command price in the range of 221.6 to 332.4
Of course, next trigger’s outcome will be closely watched to price it 30 times.
yes, very good results.
Happy dusherra ace Bro
Thanks and wish you the same sir.
Dear Ace, Hope you are doing great! Spectacular results by our company Mangalam Drugs.
Long way to go though. Thank you again for the stock story….Cheers:)
“our company”… i appreciate your thinking. this is the right way to think as an investor. Great. God Bless !!!
ACE, can we expect Wanbury to repeat 1st quarter’s spectacular performance?
why to speculate. lets wait for the results.
Sir , why dont u recommend stocks during market hours.
tried that earlier, but most people dont like it as punters manipulate the prices and therefore, would not be recommending it in market hours.
Aceji – new accounting standard, Ind-AS, any view you hold on this ?
these are minor short term gyrations
Ok.
Aap ko aur aapke parivar ko vijyadashmi ki shubhkamnaye. 🙂 hamare viswaas ko bal dene ke liye tahe dil se dhanyawad 🙂
thank you and wish you and your family the same. God Bless !!!
Happy Dussehra sir ji………Let the devil die and Dharma win……let us follow dharma with devotion. God bless all and wishing all of you Happy Vijayadashmi.
thanks and wish you and your family the same.
Happy Dussehra to you and all – sacbee
thanks and same to you … God Bless…
Ace, your views on Virat Industries?
sorry dont like it…
May I know why, Ace? On what parameters does it significantly differ from Spenta? The Management? Or customer base?
on every parameter… spenta is industry leader by a huge margin and is a branded play man…also spenta has excellent cash flows – infact way better cash flow, much better growth ..great cash reserves led by smart management….also, talk to both the companies and ask uncomfortable questions..and you would realize why i rate spenta so high…
I get it 🙂 Will do, Ace! Thanks!
Hello Ace ji—–Subha Vijayadashmi!!!!!!!! God Bless U and ur family———-sorry to disturb u regarding one of ur old picks—–its V2 Retail—I was convinced on the company and Mr. Agarwal’s interesting journey and his commitment to the business——BUT did not enter for the case going on in the court as that is uncertain and not sure which way the verdict will go that’s why——–and also the 118cr. claims by Income tax department(its very tough to fight with IT dept in my opinion)—–could you please comment on these two issues because seeing the tremendous business improvements of the company, growth potential of organized retail sector(24%) and company in near future , reduction of long term debt by 21 cr.(from 37 to 16)—these are very lucrative improvements in the company’s business , operations and future potential to invest in this company——-so if those two issues are not threatening then I will enter this company with peace of mind——-Thanks in advance!!!!!!!!
as you should be knowing i dont do portfolio management. also these issues are not new and is known and more importantly discussed numerous times last year in the blog. Please refer that and decide for yourself.
Yeah, agree—-by the way looks like my wish will get fulfilled and the target is visible—–the wish is to see one post by you with heading “Mangalam 20 times in XXX Years”–where XXX is 2-3 years——with consistently improving results, good growth on both top and bottom line , with new approvals coming by Dec 2015, with debt reduction and god effort from management team led by our MD Mr. Sri Dhooot ji, the stock price should reach 800(which is 20 times of your recommended price of 40) within 2 years……….Thanks again for finding this great company—-God Bless U!!!!!!!
sir what is your view on kellton tech they are coming with qip for fund rasing and equity dilution
dont like kellton….too many acquisitions are a red flag for me…
Hi
sir ur valuable comment required on JAUSS POLYMERS LTD (BSE) 4.63 CR equity last year EPS Rs 3.98 & now on 1qtr Eps Rs.2.29 ,promoters have increased from 33.56 % to 52.07 % ..this growth will continue or this is a cyclical business…..cmp mkt price is around 21 ……
i don’t have a deep knowledge then u….so please
thanks ….
no change from previous views
Ace Bro.. whats your take on Nucleus Software. Debt free.. sitting on 335 crores cash.. recent tie up with microsoft.
decent as mentioned earlier
Is this the right time to enter in spenta at the 52 week highs. plz suggest.
please go through the stock story and research and understand what spenta stands for. As people know here, i do not do portfolio management but my views on the company are pretty obvious.
When is the next recommendation is coming out.
probably this weekend
i have already shared my thoughts on this … if you googlethe comments on this blog you will see why i prefer spenta over virat
moderated—————-
this kind of promotional activity is not allowed. have deleted all your previous comments too.