Indian Terrain (IT), a casual and sportswear, men's only apparel company, which posted strong growth in both topline and bottom line during the period FY14-FY17 seems to be losing its momentum.
During FY14-FY17, IT's operating revenue grew at 20% CAGR and operating profit grew at 40.3% CAGR. This is despite a 16.5% YoY decline in operating profit in FY17. FY18 turned out to be even worse, operating revenue was almost flat YoY, while operating profit declined further by 7.8%.
With a PE ratio of around 20 in an industry where the average PE ratio stands at around 50, the stock is attractively priced. More so, given its strong balance sheet that boasts of Rs. 196 cr in reserves and surplus and total (long-term and short-term) debt of about Rs. 37 cr as on FY17 end. The long term debt is negligible at around Rs. 2 cr.
Is IT a classic case of a small company that starts off strong and struggles to grow once it reaches a certain scale? Or is there scope for IT to stage a comeback and achieve the strong growth rate that it achieved in the past?
Let's discuss the following to answer this question:
factors that led to strong growth in the past
current issues that IT is struggling with
IT's response to these issues (e.g. change in strategy)
expected effectiveness of new measures and projected outcome
Based on the above, we can agree or disagree if investing in this stock after the recent 40% correction from Rs. 233 in 15 Jan. 2018 to Rs. 138.5 on Aug 09, 2018 really offers a good growth opportunity to enter.
Indian Terrain stock after consolidating during August to October 2018, is technically not all set to give strong returns. It can possibly reach Rs. 190 levels in 5-6 weeks time, from its current level of Rs. 150. Check the details here: https://www.perspectivesansights.com/single-post/2018/11/16/Indian-Terrain-Fashions-Ltd-Stock-Price-Set-to-Return-25-in-Next-5-6-Weeks
IT's fundamental strength and clear vision remains intact. Which means It is likely to continue to witness strong growth in the future despite ever increasing competition. And its higher than average profit margin instills comfort in investors that IT can last any tough times that the industry may face in the future.
If we look at a slightly positive and realistic scenario then IT's EPS should grow 15% to reach Rs. 7.7. And given this growth its PE ratio could easily move up a bit, even if we assume to say 23, the IT's stock price would be Rs. 177, which would mean a 32% increase in its stock price. Which is a really good return on investment. However, before investing an investor would need to watch out for evidence for at least another quarter to check whether IT is able to clock good growth in topline and bottomline in Q2FY19.