Saral Gyan Hidden Gem - Feb 2012

UNEXPLORED MULTIBAGGER SMALL CAP STOCKS

EQUITY RESEARCH REPORT

SUPERHOUSE LTD

BSE CODE: 523283

Industry: Leather / Leather Products CMP: Rs. 48.20 (29/02/2012)

Market Cap: 55.04 (Crores) Target Price: Rs. 110 Date: February 29, 2012 Time Period: 18 – 24 months

Saral Gyan Capital Services

www.saralgyan.in

An Independent Equity Research Firm

http://www.saralgyan.in/

HIDDEN GEMS – FEB 2012

- 2 - SARAL GYAN CAPITAL SERVICES

TABLE OF CONTENT

S.No Content Page No. 1. Company Background 03 2. Recent Developments 07 3. Financial Performance 10 4. Charts & Graphs 12 5. Peer Group Comparison 14 6. Key Concerns 14 7. Industry Overview 15 8. Future Outlook 17 9. Saral Gyan Recommendation 18 10. Disclaimer 19



1. Company Background

Superhouse Ltd is a group of several companies engaged in manufacturing and export of finished leather, leather products and textile garments. The parent company, Aminsons Leather Finishers Pvt., was incorporated as private limited company on January 14, 1980. It was converted into a public limited company on December 22, 1984 and its name changed to Aminsons Limited on February 21,1989. In addition, five group companies - Super House Limited, Super Garments Limited, Sharp Leathers Limited, Super Footwear Limited and Allen Shoes Limited - were merged with Aminsons Limited in 1994, 1995 and 1996 as per the orders of the Hon’ble High Court of Judicature, Allahabad. The name of the company was changed to Superhouse Leathers Limited on March 4,1996 and finally Superhouse Limited on November10, 2006 with the approval of the Registrar of Companies, Kanpur (U.P.).

From a single tannery in the 1980’s producing finished leather, Superhouse Group has emerged as one of the largest players in the industry. It started with a commitment to excel, achieve and deliver the very best. Towards this end, company engineers, optimizes and controls every phase of the manufacturing process from raw material to finished products to ensure that end products are of the highest quality and also the best value for money for their clients.

SUPERHOUSE Range of Exported Products

The Superhouse Group has four overseas companies in the UK, the U.S.A., the U.A.E. and Romania, primarily engaged in marketing and distribution of leather, leather products and textile garments.

The Group has crossed an annual turnover of Rs. 4,000 million. The Group has 15 manufacturing units located in Kanpur, Unnao, Agra and Noida



Manufacturing Facilities 1. Finished Leather

Tannery I Tannery II Tannery III Tannery IV 2. Men’s Footwear

Footwear Division I Footwear Division II

Footwear Division III



3. Ladies Footwear 4. Children’s Footwear 5. Safety Footwear Safety Footwear Division I Safety Footwear Division II 6. Leather Accessories 7. Riding Products 8. Readymade Garment 9. Safety Wear Division



Achievements - Rewards & Recognitions

2008-09

Commendable Export Performance 2008-09 Silver Trophy.

Presented by Council for Leather Exports.

2008-09

Best Export Performance 2008-09 Non-Leather Saddlery & Harness.


2008-09

Commendable Export Performance 2008-09 for Finished Leather

Presented by Council for Leather Exports

2008-09

Commendable Export Performance 2008-09 for Footwear Components

Presented by Council for Leather Exports

2008-09

Outstanding Award State Export Award 2008-09

Presented by Uttar Pradesh Government.

2007-08

Commendable Export Performance 2007-08 Silver Trophy.


2007-08

Best Export Performance 2007-08 Non-Leather Saddlery & Harness.


2007-08

Trading House Certificate.

Presented by Ministry of Commerce and Industry, Government of India.

2007-08

Outstanding Award State Export Award 2007-08

Presented by Uttar Pradesh Government

2007-08

First Prize State Export Award 2007-08

Presented by Uttar Pradesh Government

2006-07

Best Overall Export Performance 2006-07 Gold Trophy




2. Recent Development A) Superhouse Brands entry in Indian Markets 1. Allen Cooper

Until now, Allen Cooper had been enjoying the prestigious patronage of British and European markets. The brand has now stepped into the Indian market and is catering to the requirements of corporate and institutional customers, creating a niche image for its fashion leather products adhering to the high standards that the British have set, Allen Cooper’s range of

products boasts of an array of international designs through its Italy, UK, China and India based design studios. However, Allen Cooper has not rested on its laurels. It is acquiring the best of Indian patterns and is continuously innovating products with imagination and realism, leaving competition miles behind. Indian customers have taken very well to Allen Cooper products and the demand is growing daily among quality conscious customers demanding international class. The response has been overwhelming and Allen Cooper will soon be spreading its wings across India to cater to customer’s wishes. 2. Double Duty

Double Duty is a brand owned by Superhouse Ltd for marketing safety footwear and garments mainly to Gulf countries and European countries. Double duty is the only brand in export market under which we produce safety shoes with Direct Injection PU,

PU/TPU, Goodyear welted and Direct vulcanizing process meeting to all international safety norms.



B) Up-gradation in Research & Development Superhouse Group is committed to continuous Research and Development, technological innovation, up-gradation and improvements to achieve ever-higher standards of quality. The Research and Development facilities of the Group:

* Separate Research and Development Departments for every factory.

* Separate Design Centers for Shoes, Bags, and Garments.

* Specialized design center in China.

* Renowned designers from various countries.

* CAD-CAM facilities at shoe factories.

* CAD-CAM facilities at fashion garment units.

* State-of-the-art laboratories at the tanneries.

* R & D and design centers.

Superhouse R & D and Design Centers Design Center in China CAD-CAM Facilities, Footwear Division-I C103, No. 603-613 Xicha Road, D-15, Industrial Area, Baiyun District Guangzhou, CHINA Site-II Unnao - 209801 UP, INDIA CAD-CAM Facilities, Footwear Division-II CAD-CAM Facilities, Readymade Garments Div Plot No. A 3, Export Promotion Industrial Park A-14, Sector-65, Phase – III, Agra – 282007, INDIA Noida - 201303 UP INDIA



C) Participation in International Fairs

Fashion Footwear Country

Riva Del Garda Italy

Micam Shoe Event Italy

Safety Footwear Country

A + A Germany

Expo Protection France

Safety and Health Expo U. K.

Sicur Tech Spain

Finished Leathers Country

Roslegprom Moscow

Aplf Hong Kong

Lineapelle Italy

Readymade Garments and Riding Products Country

Spoga Fair Germany

Beta Fair U. K.

Indian Intl Garment Fair India

Leather Garment & Accessories Country

Mipel Italy



3. Financial Performance Superhouse net profit rises 30.71% in the December 2011 quarter

Net profit of Superhouse rose 30.71% to Rs. 51.5 million in the quarter ended December 2011 as against Rs. 39.4 million during the previous quarter ended December 2010. Sales rose 3.16% to Rs. 1065.1 million in the quarter ended December 2011 as against Rs. 1032.5 million during the previous quarter ended December 2010

FY 2010-2011 Result Updates:

For the audited full year, net profit rose 25.86% to Rs. 171.8 million in the year ended March 2011 as against Rs. 136.5 million during the previous year ended March 2010. Sales rose 24.68% to Rs. 4432 million in the year ended March 2011 as against Rs. 3554.7 million during the previous year ended March 2010



Current & Expected Earnings: Quarterly Ended Profit & Loss Account

Expected Earnings for 4th Qtr FY 2011-12: We expect Superhouse Ltd will post good growth in coming quarters with rising demand in leather exports and by launching more brands in Indian market. We believe, FY 2012 – 13 will prove to a good year for the company with revival in world economy. In financial front, company’s performance has improved significantly in last couple of quarters. Superhouse has posted 30.7% growth in net profit in Dec’11 quarter.

Particulars (Rs in Millions)

Mar 2011

Jun 2011

Sep 2011

Dec 2011

Mar 2012 E

Jun 2012 E

Audited / UnAudited UA UA UA UA UA UA

Net Sales 1278.9 1068.01 1323.99 1079.84 1396.88 1184.79

Total Expenditure 1147.15 956.02 1170.22 951.94 1198.34 1027.25

PBIDT (Excl OI) 131.75 111.99 153.77 127.9 198.54 157.54

Other Income 1.51 0.65 1.3 2.52 2.45 1.72

Operating Profit 133.25 112.64 155.07 130.42 200.99 159.26

Interest 20.59 26.06 27.61 26.03 32.12 28.01

Exceptional Items 0 0 -19.05 0 0 0

PBDT 112.67 86.58 108.41 104.39 168.87 131.25

Depreciation 22.78 23.75 23.75 24.83 25.35 25.92

Profit Before Tax 89.89 62.83 84.66 79.56 143.52 105.33

Tax 31.65 20.53 27.53 28.09 44.48 35.15

Provisions & contingencies 0 0 0 0 0 0

Profit After Tax 58.24 42.3 57.14 51.47 99.04 70.18

Extraordinary Items 0 0 0 0 0 0

Prior Period Expenses 0 0 0 0 0 0

Other Adjustments 0 0 0 0 0 0

Net Profit 58.24 42.3 57.14 51.47 99.06 70.18

Equity Capital 114.2 114.2 114.2 114.2 114.11 114.11

Face Value (IN RS) 10 10 10 10 10 10

Reserves 0

Calculated EPS 5.1 3.7 5 4.51 8.68 6.15

Calculated EPS (Annualised) 20.4 14.82 20.01 18.03 34.72 24.6

No of Public Share Holdings 501545

8 501545

8 501550

8 501530

8 5016458 5016458

% of Public Share Holding 45.49 45.49 45.49 45.49 45.49 45.49



4. Charts & Graphs i) Share holding Pattern: Promoters share holding in Superhouse Ltd is 54.5 %, increased significantly in last 5 years.

ii) Share Price Moving Average: Superhouse is currently trading near its 50 day price moving average. Stock has strong support at 42 Rs levels.



iii) Performance Chart: Company has shown consistent growth in terms of sales and profits year after year.

iv) Comparative Graph:



5. Peer Group Comparison

PEER GROUP Superhouse

Ltd Mirza

International Mayur Leather

Bhartiya International

Liberty Shoes

CMP 48.20 19.55 29.75 112.25 91.50

52 W H/L 55.45/39.70 26.10/16.00 51.20/23.25 78.10/37.35 108.60/56.90

Market Cap 53.14 181.24 14.38 56.86 155.91

Results (in Cr) Dec-11 Dec-11 Dec-11 Dec-11 Dec-11

Sales 107.98 147.40 5.74 65.71 84.14

PAT 5.15 7.98 0.13 1.77 2.51

Equity 11.41 18.54 4.83 10.06 17.04

EPS 4.51 3.90 0.05 6.45 3.98

P/E 2.5 5.02 599.31 8.76 23.01

6. Key Concerns / Risks

i) Dependency on exports with less exposure in domestic market. ii) Increase in labour cost and raw material cost can reduce operating and profit

margins significantly iii) Global slowdown in demand can affect exports of leather goods. iv) Use of alternatives like artificial leather to save animals can also impact growth

of leather companies.



7. Industry Overview The Leather Industry holds a prominent place in the Indian economy. This sector is known for its consistency in high export earnings and it is among the top ten foreign exchange earners for the country. With an annual turnover of over US$ 7 billion, the export of leather and leather products increased manifold over the past decades and touched US$ 3.40 billion in 2009-10, recording a cumulative annual growth rate of about 5.43% (5 years). The Leather industry is bestowed with an affluence of raw materials as India is endowed with 21% of world cattle & buffalo and 11% of world goat & sheep population. Added to this are the strengths of skilled manpower, innovative technology, increasing industry compliance to international environmental standards, and the dedicated support of the allied industries. The leather industry is an employment intensive sector, providing job to about 2.5 million people, mostly from the weaker sections of the society. Women employment is predominant in leather products sector with about 30% share. Though India is the second largest producer of footwear and leather garments in the world, India accounts for a share of close to 3% in the global leather import trade of US$ 137 billion (2008). The major production centers for leather and leather products are located in Tamil Nadu - Chennai, Ambur, Ranipet, Vaniyambadi, Trichy, Dindigul ; West Bengal – Kolkata ; Uttar Pradesh – Kanpur, Agra & Noida ; Maharashtra – Mumbai ; Punjab – Jallandhar ; Karnataka – Bangalore ; Andhra Pradesh - Hyderabad ; Haryana - Ambala, Gurgaon, Panchkula and Karnal; Delhi Strengths of Indian leather sector 1. Own raw material source – 2 billion sq ft of leather produced annually 2. Some varieties of goat / calf / sheep skins command premium position 3. Strong and eco-sustainable tanning base 4. Modernized manufacturing units 5. Trained / skilled manpower at competitive wage levels. 6. World-class institutional support for Design & Product Development, HRD and R & D. 7. Presence of support industries like leather chemicals and finishing auxiliaries 8. Presence in major markets – Long Europe experience 9. Strategic location in the Asian landmass



Emerging strengths 1. Design development initiatives by institutions and individuals 2. Continuous modernization and technology up-gradation 3. Economic size of manufacturing units 4. Constant human resource development programs to enhance productivity 5. Increasing use of quality components 6. Shorter prototype development time 7. Delivery compliance 8. Growing domestic market for footwear and leather articles

India Leather & Leather Product Export (2009-2010)

Country wise Exports from India (2009-2010)



8. Future Outlook Leather & Leather Products Exports – 2005 - 2010

India’s export of leather and leather products for last five years

(Value in Million US$)

EXPORT ITEMS 2005-06 2006-07 2007-08 2008-09 2009-10

Finished Leather 636.27 724 807.19 673.37 625.54

Footwear 1045.24 1236.91 1489.35 1534.32 1507.51

Leather Garments 333.3 309.91 345.34 426.17 428.52

Leather Goods 660.17 706.28 800.46 873.44 756.02

Saddlery & Harness 77.52 82.33 106.18 92.15 83.39

Total 2752.5 3059.43 3548.51 3599.46 3400.97

% Growth 10.30% 11.15% 15.99% 1.44% -5.51%

The Government of India had identified the Leather Sector as a focus sector in its Foreign Trade Policy 2004-09 in view of its immense potential for export growth prospects and employment generation. Accordingly, the Government is also implementing various Special Focus Initiatives under the Foreign Trade Policy for the growth of leather sector. With the implementation of various industrial developmental programmes as well as export promotional activities, and keeping in view the past performance, and industry’s inherent strengths, the Indian leather industry aimed to augment the production, thereby enhance export to US$ 7.03 billion by 2013-14, and resultantly create additional employment opportunities for overall one million people.



9. Saral Gyan Recommendation

With government plans to focus on leather exports with special initiatives, Indian Leather & Leather goods companies are expected to post good growth in coming years. Superhouse Ltd being one of the major leather export company is expected to achieve double digit growth in sales & profits in next 2 years.

Stock is currently trading at a price to earning ratio of 2.5, which makes the stock

valuations cheap when compared to its peers. Most of the peer companies PE is in the range of 7 to 18 with lesser top line and bottom line growth, this makes Superhouse a best buy in leather & leather goods segment.

As per our estimates, Superhouse can deliver bottom line of 300 million for full

financial year 2012 – 13, annualized EPS of Rs. 25.2 with forward P/E ratio of 1.9 X for FY 2012-13, which makes stock of the company an attractive bet at current market price.

Company has paid regular dividend from 2006 onwards. The last dividend paid

was 15% in last month. Dividend yield at CMP is at 3.1%.

On equity of Rs. 114.11 million the estimated annualized EPS works out to Rs. 25.2 and the Book Value per share is Rs. 114.55. At a CMP of Rs. 48.20, stock price to book value is 0.42. The scrip is trading at 19. X FY 2012-13 estimated earnings which make it an attractive buy when compared to its peers.

Saral Gyan Team recommends “BUY” for Superhouse Ltd. at current market price of 48.20 for a target of Rs. 110 over a period of 18-24 months.



10. Disclaimer Important Notice: Saral Gyan Capital Services is an Independent Equity Research Company. Disclosure: The author of this article does not hold shares in the recommended company. © SARAL GYAN CAPITAL SERVICES

This document prepared by our research analysts does not constitute an offer or solicitation for

the purchase or sale of any financial instrument or as an official confirmation of any transaction.

The information contained herein is from publicly available data or other sources believed to be reliable but we do not represent that it is accurate or complete and it should not be relied on as

such. Saral Gyan Capital Services (www.saralgyan.in) or any of its affiliates shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error

in the information contained in this report. This document is provide for assistance only and is

not intended to be and must not alone be taken as the basis for an investment decision.

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Saral Gyan Hidden Gem - Feb 2012

Economy & Finance

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