Sunil Singhania's Latest Stock Pick in this Beaten Down Market is this Undervalued Smallcap

In the investing world, many retail investors track the buy and sell activities of the top hedge funds, mutual fund managers, and top investing gurus to dive deep into their highest conviction ideas.

These investors have already spent weeks and months building conviction in their idea before investing.

Keeping that in mind, we are going to look at one recent buy activity of a prominent investor on Dalal Street.

Ace investor Sunil Singhania has recently added a new smallcap stock in his Abakkus Fund.

About Sunil Singhania

Sunil Singhania is founder of Abakkus Asset Manager, an investment management company.

Sunil Singhania has a track record of over two decades in equity markets, and he played a significant role in building Reliance-Nippon MF into one of India's largest asset management companies (AMCs).

To dwell deep into his portfolio, check out Sunil Singhania Portfolio: top 5 stocks.

Which Stock did Sunil Singhania Buy and Why?

The company in question is Himatsingka Seide.

On 12 November 2024, it was reported that Sunil Singhania has acquired 8.5 million shares of this smallcap textile company.

The transaction happened when the company launched its qualified institutional placement (QIP) and the activity was later reported in insider trades & SAST.

The issue price was Rs 146 per share.

When we backtracked to Himatsingka's June 2024 shareholding, Sunil Singhania and Abakkus' name was missing from the shareholders list.

Every quarter, companies have to file their shareholding and provide the names of shareholders who hold above 1% stake in the company.

The latest shareholding has now revealed that Singhania has entered the stock by adding it in his three Abakkus funds.

This is a huge purchase by Singhania.

While we don't exactly know why he turned so bullish on the textile company, there are some reasons that we can guess.

Himatsingka is All About Invention...

Over the years, Himatsingka Seide has focused on ways to become more credible and transparent. It brought in a technology that allows clients to verify authenticity of cotton at different stages of manufacturing.

Here is an excerpt from company's annual report for FY16:

• We are indeed pleased to be the first mover to bring to market a DNA verified cotton value chain solution under the Pimacott Brand. This initiative will drive significant value for our clients and consumers alike in the backdrop of ever changing consumer preferences, demands of the millennial consumer and the advent of omni-channel retailing.

The Himatsingka group is also among the top five home textile players in India. It has high-end manufacturing facilities for bedsheets, terry towels, spinning and drapery and upholstery fabric manufacturing.

The company's foray into the terry towels segment has improved customer diversity.

The group also has licenses for reputed brands such as Tommy Hilfiger Home, Calvin Klein Home and Kate Spade, and caters to the private labels of major retailers.

At present, branded sales contribute around 70% of Himatsingka's overall revenue.

Decent Valuations

Another reason why Sunil Singhania might have turned bullish on this stock could be because of its attractive valuations.

The price to book value (P/BV) ratio of Himatsingka stands at 0.9x. This is almost similar to its median 5-year P/BV multiple.

Stocks trading at low price to book value multiples have come under focus in this beaten down market.

A stock trading below its book value suggests that the company's assets are valued favourably compared to its stock price, which might indicate a bargain.

Here's a chart showing Himatsingka's P/BV over the years -

Improved Outlook

The company's management has highlighted that a recovery is on the cards in the second half of FY25.

The company is targeting to increase utilization levels to over 90% within the next 12 to 18 months.

The management has also indicated that margins will be influenced by product mix, raw material costs, and other factors.

Himatsingka is targeting Rs 1,000 crores in revenue contribution from the Indian market over the next five years.

It's expecting EBITDA contribution to be in the range of 18% to 20%.

A big concern for Himatsingka has remained high debt, which has resulted in higher interest costs.

Financial Snapshot

Rs m, consolidated	FY20	FY21	FY22	FY23	FY24
Net Sales	23,579	22,583	31,840	26,777	28,415
Growth (%)	-10%	-4%	41%	-16%	6%
Operating Profit	4,793	3,032	5,499	3,460	6,173
OPM (%)	20%	13%	17%	13%	22%
Net Profit	133	-533	1,408	-641	1,128
Net Margin (%)	1%	-2%	4%	-2%	4%
ROE (%)	1.0	-4.0	10.1	-4.4	7.5
ROCE (%)	6.7	3.8	9.7	4.3	10.8
Dividend (Rs)	0.5	0.5	0.5	0.0	0.3
Debt to Equity (x)	2.1	1.9	1.9	1.9	1.8

Source: Equitymaster

The company has guided that interest costs are expected to decrease as working capital gets optimized.

The management is focused on reducing working capital congestion and enhancing the equity base to strengthen the balance sheet.

Furthermore, the recently conducted QIP and the investment by Singhania are expected to bolster Himatsingka Seide's capital base and support its growth initiatives.

How Himatsingka Seide Share Price has Performed Recently

In the past 5 days, Himatsingka Seide share price has fallen by 9%.

In 2024 so far, the stock has declined over 15%.

Himatsingka Seide has a 52-week high of Rs 187 touched on 14 December 2023 and a 52-week low of Rs 116 touched on 13 March 2024.

In the past 1 year, shares of the company have fallen by 14%.

Here's a table comparing Himatsingka with its peers -

Comparative Analysis

Company	Himatsingka Seide	Gokaldas Exports	Indo Count	Mafatlal Ind	Sangam India
ROE (%)	7.5	12.4	17.4	13.9	4.4
ROCE (%)	10.8	13.8	18.5	11.8	6.7
Latest EPS (Rs)	8.3	18.2	15.6	14.1	7.4
TTM PE (x)	17.7	46.1	21.7	10.3	48.3
TTM Price to book (x)	0.9	3.1	3.1	1.1	1.8
Dividend yield (%)	0.2	0.0	0.7	0.0	0.6
Industry PE	39.8
Industry PB	4.9

Source: Equitymaster

About Himatsingka Seide

The Himatsingka Group, headquartered in Bengaluru, Karnataka (India), is a vertically integrated home textile major with a global footprint.

Himatsingka Seide Ltd was founded by Mr Dinesh Himatsingka in 1986. It was the first vertically integrated plant (at Doddaballapur, Karnataka) of its kind that manufactured luxury Drapery & Upholstery fabrics for international markets. Initially, silk was the main material used for production (Seide is a German word meaning silk).

After Mr Shrikant Himatsingka joined the family business, the company ventured into retail and set up its retail brand 'Atmosphere' to have presence in the Indian market without diluting the image of the brand.

However, over next few years, the company realized the scalability challenges. It then made a foray in the manufacturing (Hassan plant, Karnataka) and distribution of products in bedding space.

The company, after its foray in the bedding space, faced challenges such as economic slowdown, wild fluctuation in the raw material price and exchange rates (majority of the revenue is export driven) that put the business model to test. However, the management considers it a great learning experience and believes that the group has emerged more resilient after going through that phase.

What makes Himatsingka Seide stand apart in the industry is its exclusive global rights to the patented DNA tagging and fibre typing technologies, that offers traceability solutions to the clients and ensures quality and credibility. The company enjoys global leadership position in cotton track & trace capabilities (patented) under Pimacott, Organicott & HomeGrown cotton brands.

To know more, check out Himatsingka's financial factsheet.

Happy Investing.

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...