Faze Three raised money for two projects. One, for a Rs 13.68-crore facility to make Jacquard furnishing fabrics and made-ups with an installed capacity of 11.66 lakh square metres in Goa. Two, for a Rs 2.02-crore 2,500 square feet showroom at Napeansea Road in Mumbai. The showroom at an up-market locality was to tap the growing domestic market for quality home furnishings. Both the projects have been delayed by over a year. The plant which was supposed to come up in Goa is instead ready at Silvassa having commenced trial runs, while the showroom is to be inaugurated only in Diwali.
The company says several procedural delays on the part of the authorities in Goa forced it to shift the project. Fair enough, if you consider that this is not the only project that has moved out of Goa in recent times. Anyway, the company will now be eligible for some backward area exemptions. But the delay hit projections. Instead of a turnover of Rs 45.76 crore and a net profit of Rs 9.67 crore, Faze Three could only achieve a turnover of Rs 31.2 crore and a net profit of Rs 6.25 crore. In fact, it even failed to achieve the projected Rs 35 crore turnover from its existing unit at Panipat. Reason: the continuing recession in the Japan-ese markets which accounted for 55.71 per cent of Faze Three's exports in 1994-95 (see table on country-wise sales break-up).
However, performance has improved in the first five months of 1996-97 with a turnover of Rs 11.8 crore against about Rs 10 crore inthe pervious corresponding period. The profit before tax stood at Rs 2.40 crore in the first five months. The recession in Japan forced the company to shift its marketing push to USA and Aus-tralia. Hence contribution from Japan went down to 41.44 per cent in 1995-96. In the first five months it has gone down further to 18.56 per cent. On the other hand, contribution from USA rose from 18.78 per cent in 1995-96 to 30.25 per cent in the first five months of 1996-97. The company now is a supplier to leading chain stores such as Tar-get, JC Penny, Wal-mart for the US and Target, Big W, Fossy in Australia.
Orders for Faze Three start flowing only September-onwards. The rainy season is the lean period. Currently, firm orders total Rs 22 crore. But management is confident of touching the Rs 40-crore mark in the current year. However, company sources say that Silvassa will make a major impact only in 1997-98. Most of the sales from Silvassa in the current year are linked to the showroom. About Rs 1.5 crore is expected from retail sales in the current year where net margin can be over 50 per cent (tax-free). Assuming that the company can maintain an average net profit margin (after accounting for MAT) of around 17 to18 per cent, the stock looks attractively priced. Net profits will be better next year since the Silvassa plant is exempt from tax for 5 years.
There are other aspects about the company which sound interesting. Ajay Anand, the managing director of the company says that there is little domestic competition for their products. Most of the global competition comes from China.
