Pioneer Embroideries is a stock need no introduction to
veteran investors .It was a hot one till 2007-08 which
recorded its lifetime high @ Rs.345 during January 2008. Company is in the
business of manufacturing embroidered fabrics, laces and dope dyed yarn and its
brand “Hakoba” is still the undisputed leader in embroidered clothing category.In the ‘Laces’ segment company
is the second largest producer in the world
Company
operating six manufacturing facilities across India with facilities to produce Embroidery
(4248 million stitches), Bobbin Lace (25,200,000 mtrs), spun yarn (1,788 MT)
and dope dyed yarn (10,500 MT). Due to leveraged and untimely expansion (
mainly in retail segment) and unexpected downturn in overseas markets due to
recession ..etc company went into big
trouble .From a net profit of Rs.15 Cr reported in 2007 , its bottom line
crashed to a loss of Rs.33 Cr in 2013 ( Out of this Rs.33 Cr , more than Rs.15
Cr were interest payment) . Sensing the
big trouble, management initiated efforts to revive the company . Efforts to settle
bank loans through CDR mechanism failed due to disagreement of few banks in the
lender consortium . Because of this reason company initiated talks with each
banks separately for one time settlement ( OTS) .Through this route company
already settled its due to ICICI Bank and it is expected to complete the
payment to State Bank of Patiala which already
negotiated and reached amicable agreement .Meanwhile during last year , company re-paid its entire FCCB
obligation on a modified repayment terms .Now
its efforts to reach settlement with other banks are at various stages
and management expressing their confidence to reach an amicable settlement with
remaining lenders within not so distant future. In a recent development, Edelweiss ARC Limited ( EARC) , an asset
reconstruction company sponsored by Mr.
Rashesh Shah led Edelweiss Group took
over the debt of Pioneer with EXIM Bank. I believe , Compared with banks
,Private asset management companies are more flexible and time and formalities
needed to deal with them is less compared with PSU banks . Now EARC agreed to
accept re-payment of interest outstanding on this loan in the form of equity . As part of this agreement
company now allotting Eight Lakhs Fifty Thousand shares to EARC at a price
of Rs.35 each. I don’t think ,any private ARC will convert even a part of their assignment to equity if
they feel the underlying business is not viable .
Company’s retail venture –
Hakoba Lifestyle- is running through its
subsidiary ( Currently four stores are operational ) and it also selling
products like ready to
stitch salwar kameez and dupatta sets, sarees ..etc through e-commerce sites
like Flipkart..etc. Amid its not so good financial situation and working
capital crunch , for the last five years pioneer reported substantial and
steady improvement in its top line ( See below Table) .
This clearly indicating,demand of product
is not the major issue of the company
but mainly the debt related issues eating its bottom line. Major fabric manufacturers in India and overseas are company's customers and the increase in export income was robust in last years which jumped from Rs.17 Cr to Rs.41 Cr. Its operating cash flow turned positive in 2011 and it is about Rs.61 Cr in last FY. Now promoters are trying
their level best to find a solution for debt related issues and considering the recent developments
,I believe the possibility for a success in this effort is quite high. If the
success of of their efforts continue in this same tempo , Pioneer may emerge as
a dark horse in the years to come . Due to cash crunch company could not modernize some of its machineries in recent times. Once they are in a position to do that it will surely improve their efficiency and margins. After the news of allotting shares to EARC @
Rs.35 , stock price appreciated in past few days . Average risk takers can wait
for a correction ( if any ) for an entry
and high risk takers may buy part now and add further in any dip ( if it
happens) . This is not a stock suitable for those looking for quick bucks by
investing only for one or two quarters. Earlier also I indicated my positive stand on this company around Rs 20-25 level ( through replies to reader queries) which was before the arrangement with EARC . Stock listed in both exchanges and
currently trading around Rs. 30 .
Link to Company Website HERE
Disc: It is safe to assume that I have vested interest in this stock.
