Thursday, May 12, 2011

Cosco (India)Ltd-Will it prove to be a sport ?


Cosco (India) Limited is a pure sporting goods company.
Cosco , which was earlier called Coronation Sporting ball Company started of as a manufacturer of rubber and latex products for exports. The Company today  is primarily engaged in the business of manufacture of sports balls and sports ball bladders. The Company also markets sports goods and fitness equipments and allied items.
Cosco operates through two business segments: own manufactured products, which includes sports balls and sports ball bladders, and traded goods, which includes fitness equipments and other sports goods.

Cosco Polymer Lanka (Private) Limited is a wholly owned subsidiary of the Company.
The Project started commercial production in 2005. The project faced teething problems during initial  years 
which resulted in low capacity utilization. The project could not  generate cash accruals till date   
 mainly due to low capacity utilization  coupled with continuous rise in Latex prices, fuel prices and 
other  inputs over the years, significant expenditure on account of Research  & Development, fixed  
establishment costs and Interest costs.The operations of the subsidiary were suspended about 2 years back.

Cosco (India)Ltd has given guarantee of  Rs.9 cr to State bank of  India Colombo in respect of loans granted by 
the bank to the subsidiary.In view of the continued sufferings of losses and  suspension of operations, the subsidiary company’s viability as a going  concern is under pressure. Company has
informed that the realizable  value of fixed assets is more than the secured debt of wholly owned  subsidiary and 
therefore the company does not  foresee any liability on that account.
Cosco  has a huge product range which encompasses virtually every well known sport. Additionally it also represents Stiga of Sweeden  in India for its entire range of Table Tennis equipment. The product range includes rackets, shuttle cocks, and grips for badminton; basket balls; bats, helmets, grips, tennis balls, batting pads, batting gloves, thigh guards, kit bags, keeping pads, keeping gloves, elbow guards, and balls for cricket; hand balls; latex bladders; roller skates; balls and shoes for soccer; and squash rackets and grips. Its sporting goods also comprise tables, blades, bats, balls, bat rubbers, and shoes for table tennis; balls, rackets, and grips for tennis; volley balls; swimming caps and goggles; and sports wear. The companys health and fitness equipment includes cross elliptical trainers, manual treadmills, motorized treadmills, rowers, exercise bikes, home gym, health riders, and steppers. In addition, it offers fitness accessories, such as yoga mats, dumbbell sets, swing machines, aerobic steps, pedometers, twister disks, waist trimmers, trampolines, and gym balls.
Manufacturing Plant: The company has a manufacturing unit near the Railway Station at Gurgaon.
Factory Area - 7 Acres
Built up Area - 150,000+ sq.ft.

Work Force - At works and other branch offices - 800.
Distribution & Sales Offices - Delhi, Gurgaon, Jallandhar, Noida, Calcutta, Mumbai.plus Distribution network of around 700 dealers presently covering all the states in India.
It has an efficient after sales service and provide good back up facilities.
Indian Sports Goods Industry overview:
The sports market has changed remarkably, especially in last few years with the emergence of world class players across sports categories from India. This has helped immensely in creating greater awareness and expanding the sports basket beyond Cricket. Unlike earlier, Indian sports lovers are now more in tune with the best of breed performance levels across sports categories like Tennis, Golf, Soccer, Basketball, Boxing etc.

An average Indian consumer still remains elusive when it comes to participating in active sports.  Family culture and value system are still engrained and cherished rather than individualistic approach. Due to this, the consumer prefers to remain on the perimeter and hence it will take some time for us to reach international scale when it comes to Sports.

One can gauge the consumer sentiment by the sheer fact that Sports as a serious career option is yet to happen. However, the current generation is much more tuned into such developments and hence much more open to experiment and try sports as a serious career option.
The advent of electronic media and with it a global exposure to championships and titles are playing a role in changing mindsets about non cricket sport and moving us albeit slowly to global benchmarks.
The sports market in India is roughly Rs 4000 cr of which the sports goods market in India is estimated to be Rs 600 crore while the balance Rs.3400 cr is sport related apparel, footwear etc. The Rs.600 cr category consists of health and fitness equipment, sports equipment (cricket bats, badminton racquets, tennis racquets and so on). This combines sports and entertainment, sponsorships, sports goods (retail and wholesale).
The sports market in India is growing at about 15% per annum.

In sports goods,one has to look at  growth both horizontally as well as vertically. Unlike any other  typical  market, in the case of sports growth will be in the form of vertical growth ;in terms of increasing consumer base and hence revenue streams as well as horizontal growth ;in terms of increasing market size with consumer adaptation of varied sports categories like Golf, Tennis, Swimming, Badminton, Soccer etc.

Seventy-eight per cent of the Indian sports goods market exists in the top 784 urban centres. A- and B-type cities (the top 119 cities) together contribute 51 per cent of the total sports goods market. Sales of sports goods, particularly fitness equipment, also happen through tele-shopping networks, mainly due to the absence of organised retailers in the category. The emergence of multi brand, multi outlet specialized sports retailers like Planet Sports,Total Sports etc  is another key development.

Financials:

Paid up Equity Capital: Rs.4.16 cr
Consolidated Debt : Rs.35 cr ( includes Rs.9 cr debt of  Sri Lankan Subsidiary)
2010-11 financials ( standalone)
Revenue: Rs.69.98 cr
PBIT: Rs.4.35 cr
PAT: Rs.0.85 cr
EPS: Rs.2.04
Dividend: Nil
Current market price: Rs.58
Market Cap: Rs.24 cr
EV: Rs.59 cr
Promoters: Narinder Kumar Jain, Darshan Jain, Devinder Kumar Jain.
Promoter holding:74.98%
Positives:
1)      Well established and strong brand –Cosco
2)      Large product range
3)      Addressable market growing
4)      7 acres of factory land in Gurgaon (only half of this is built up)
Negatives:
1)      Interest eating up into  profitability
2)      Sri Lankan subsidiary losses (these could however get recouped if Fized assets there are disposed off)
3)      Not aggressive on marketing front
4)      Promoter management-(lack of professional management)
5)      Sale of cricket equipment as a % of overall sale is very low. Cricket gear continues to be one of the largest sporting good markets in India.
Cosco is in a niche space and currently the only listed sports goods company in India currently. The closest comparable listed company is Cravatex – which is not in sports goods but primarily into Fitness Equipment.
If one were to simply go by the past performance, management’s record for delivering and current financials, Cosco is an avoidable stock.
However, if one considers the niche space in which Cosco operates and the growth potential,any positive development on the operating front can provide a disproportionately high impetus to the stock price.
High risk Investment with some possibility of high returns.



At the time of writing this report, the author /his family have an investment interest in the stock mentioned above. Under no circumstance does the information in this report represent a recommendation to buy or sell the above-mentioned stock.  This report has been prepared and issued on the basis of publicly available information, internally developed data & other sources believed to be reliable. This is just a suggestion solely for information purposes and does not constitute a solicitation to any person to buy or sell a security. While the information contained therein has been obtained from sources believed to be reliable, no responsibility (or liability) is accepted for the accuracy of its contents. Readers using the information contained herein are solely responsible for their actions and are advised to satisfy themselves before making any investments.

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