Dhanlaxmi Fabrics Ltd: December 2024 Net Sales Down 47.65% YoY
Business and Industry Overview:
Dhanlaxmi Fabrics Ltd., established in 1992, is a textile company that manufactures and processes high-quality fabrics for garment makers and exporters. It has a processing unit in Dombivli, Maharashtra, for bleaching, dyeing, printing, and finishing fabrics, along with a weaving unit in Ichalkaranji with 32 Sulzer Looms producing cotton, blended, and Lycra fabrics. The company also has a yarn-dying facility to ensure consistent colour quality. Apart from textiles, it has a 1.25 MW wind turbine in Dhule, Maharashtra, to generate clean energy. To maintain high standards, it has an in-house lab for quality control and follows international safety and environmental regulations. Its clients include well-known brands like Choudhary Garments, Sonal Garments, and Renfro India. With a strong presence in both Indian and international markets, Dhanlaxmi Fabrics Ltd. plays a key role in the textile industry.
India is the 3rd largest exporter of textiles, and it is expected to grow at a 10% CAGR and reach 30 million dollars by 2030. The textile industry is a major factor in the growth of our GDP & is expected to contribute 13 percent of the total GDP production. In 2022–23, India produced around 21.5 million metric tonnes of fabric and 585 million kg of yarn. With Gen Z coming up, there is a high demand for fast fashion, and the textile industry is managing to meet the demand. There are many players in this industry, and India can be self-sufficient and has managed to export to the world as well. In FY 24, the total export of textiles was US$ 35.9 billion. It has also helped India create employment in the unorganised sector. While Bangladesh & China were considered to be very attractive options for the fashion brand because of the low cost of labour and favourable government support, the recent geo-tensions within this country have developed a requirement for the fashion brands to look for alternatives. Hence, India now becomes a very attractive option for them. Even the government had allowed 100% FDI in this sector. Dhanlaxmi Fabrics has a good market share in the industry with a Rs. 50 crore market cap, making it the 8th largest company in terms of market cap.
Latest Stock News:
Financially, the stock is currently trading at₹57.9, down 8.08% on March 7, with a market cap of₹49.7 Cr and a book value of₹55.2. While the company has reduced debt and is almost debt-free, it has a low interest coverage ratio, poor sales growth (-24.5% over five years), and a low return on equity (-4.13% over three years). Peer comparison shows that Dhanlaxmi has a significantly lower market cap and profitability than its competitors. Quarterly results indicate declining sales and operating profits, with the company reporting negative net profits in recent quarters. Over the past five years, sales have dropped by 25%, and its return on equity has been negative. Given these factors—weak financials, declining profitability, and poor return ratios—the stock does not appear to be a strong buy candidate, and investors should exercise caution before investing.
On 8 February 2025, the board approved the sell-off of the entire shareholding of DFC Privated Ltd, which was a wholly owned subsidiary of the company.
Potentials:
Dhanlaxmi Fabrics Ltd. has new plans to improve its business.
Real Estate: The company will use its old textile unit in Dombivli for real estate projects. It plans to build shops and offices and earn money by renting them. This will help improve its financial condition.
Weaving Business: The weaving unit in Kolhapur is working well. It has 36 modern machines and makes 5 million meters of fabric every year. The company wants to sell more fabric directly to increase earnings in 2024-25.
Analyst Insights:
- Market capitalisation: ₹ 49.7 Cr.
- Current Price: ₹ 57.9
- 52-Week High/Low: ₹ 80.0 / 50.6
- P/E Ratio: -20.18
- Dividend Yield: 0.00 %
- Return on Capital Employed (ROCE): -12.2 %
- Return on Equity (ROE): -14.6 %
Dhanlaxmi Fabrics Ltd. has consistently faced financial distress in the past 2 years. They have a negative operating profit in FY24, and it is focusing on their nonoperating business, which is real estate. Their EPS also gave a negative return to the shareholders of -9.00. Despite being debt-free, it is performing poorly and is shifting its focus from its main business. This is making investors nervous about the management’s decision and is also the main reason why the stock is trading near its 52-week low. Investors are advised to exit the stock and reallocate their funds to a better-performing stock in the textile industry.