Shree Rajasthan Syntex Ltd.
(Rs. 16.00/ Bse Code: 503837)
Rationale for Recommendation: 2007 & 2008 proved to be the worst ever in Indian Textile Industry wherein, demand slumped, R/M prices went up and selling prices plunged. Due to same, share prices of textile companies touched new lows. However, fortunes of many textile companies have again taken a U-turn and still such scrips are available at dirt cheap valuations. SRSL is one such company and hence the recommendation.
BACKGROUND: Udaipur based SRSL is engaged in the production of Grey Yarn, Dyed Yarn and PPMF Yarn: Grey Yarn: Grey yarn is produced using blends of different synthetic fibre such as polyester/viscose, 100% viscose yarn, 100% polyester fibre yarn and pure cotton. These qualities are produced in SRT division and Polycot division of the company.
The company has niche markets for 100% viscose fibre yarn. Specialty fibre yarns were developed for industrial and home textile applications. Dyed yarn: Dyed yarn is produced at Syntex division of the company. These yarns are relatively higher value added products and made according to customers specification of blend, counts and shades. The company has specialty in producing home textile dyed yarns for end use such as carpets, tapestry and upholstery. Further efforts are being made to develop melange yarn for weaving and knitting applications. PPMF Yarn: Polypropylene multifilament yarn is produced at Shree Shyam Filament division of the company at Bagru, Jaipur, POY and texturised yarn is produced for knitting, socks and furnishing applications. BCF yarn is produced for carpet applications.
Recently, SRS has also commissioned 10MW Power Plant for captive use. Its installed capacity are as under:
1. 67584 Spindles for Synthetic Blended Yarn.
2. 14520 Spindles for Cotton Yarn.
3. 3600 tonnes for PPMF.
In 2008-09, performance was severely affected due to slowdown in domestic as well as international market. It produced 22915 tonnes of yarn as against 24306 tonnes in previous year. During the year, exports fell to 56.50 crs. as against 102 crs. in previous year. Above results include forex loss of 5.24 cr. It means loss from the operations was 4.14 crs. Since depreciation stood at 10.66 crs., cash loss was just 1.28 crs. In Q4, it commissioned 10MW Power Plant which will not only reduce power cost but will ensure higher production.
Yarn prices had touched new low in Q3 08-09. Same started improving a bit in Q4. However, from April 2009 onwards, yarn prices started rising steeply. Due to recession, exports were down and yarn inventory with importers touched all time low. Once World Economy started improving, these importers have started importing heavily. It increased pricing power of spinners in domestic market also. Moreover, weaving capacity (main consumers of yarn) continued to rise. In this context, performance of Q1 is reasonably good. After providing 1.04 cr. forex loss, Company has incurred loss of 34 lakhs as against loss of 1.71 crs. in corresponding quarter of previous year. Moreover, Q1 Cash Profit is 3.32 crs.
In Q1, Company was executing earlier orders of relatively lower prices. Impact of higher priced orders booked in Q1 will be felt in Q2. Yarn prices continue to be firm whereas R/M prices are at reasonable levels (gone up much less as compared to rise in yarn prices). For 09-10, Company is likely to achieve EPS of Rs. 3.40 and Cash EPS of Rs. 12.35. Presently, huge expansion of weaving is taking place in Bhilwara which is the biggest yarn market in India. On the other hand, no new spinning capacities are in pipeline. Hence, it is estimated that next year, demand for yarn will be much higher and spinning companies like SRSL will have better profit margins. Also, even next year R/M prices will remain soft/reasonable and very unlikely to rise due to huge global capacities.
Valuations: SRSL is available dirt cheap at CMP considering the following:
(Rs. 16.00/ Bse Code: 503837)
Rationale for Recommendation: 2007 & 2008 proved to be the worst ever in Indian Textile Industry wherein, demand slumped, R/M prices went up and selling prices plunged. Due to same, share prices of textile companies touched new lows. However, fortunes of many textile companies have again taken a U-turn and still such scrips are available at dirt cheap valuations. SRSL is one such company and hence the recommendation.
BACKGROUND: Udaipur based SRSL is engaged in the production of Grey Yarn, Dyed Yarn and PPMF Yarn: Grey Yarn: Grey yarn is produced using blends of different synthetic fibre such as polyester/viscose, 100% viscose yarn, 100% polyester fibre yarn and pure cotton. These qualities are produced in SRT division and Polycot division of the company.
The company has niche markets for 100% viscose fibre yarn. Specialty fibre yarns were developed for industrial and home textile applications. Dyed yarn: Dyed yarn is produced at Syntex division of the company. These yarns are relatively higher value added products and made according to customers specification of blend, counts and shades. The company has specialty in producing home textile dyed yarns for end use such as carpets, tapestry and upholstery. Further efforts are being made to develop melange yarn for weaving and knitting applications. PPMF Yarn: Polypropylene multifilament yarn is produced at Shree Shyam Filament division of the company at Bagru, Jaipur, POY and texturised yarn is produced for knitting, socks and furnishing applications. BCF yarn is produced for carpet applications.
Recently, SRS has also commissioned 10MW Power Plant for captive use. Its installed capacity are as under:
1. 67584 Spindles for Synthetic Blended Yarn.
2. 14520 Spindles for Cotton Yarn.
3. 3600 tonnes for PPMF.
In 2008-09, performance was severely affected due to slowdown in domestic as well as international market. It produced 22915 tonnes of yarn as against 24306 tonnes in previous year. During the year, exports fell to 56.50 crs. as against 102 crs. in previous year. Above results include forex loss of 5.24 cr. It means loss from the operations was 4.14 crs. Since depreciation stood at 10.66 crs., cash loss was just 1.28 crs. In Q4, it commissioned 10MW Power Plant which will not only reduce power cost but will ensure higher production.
Yarn prices had touched new low in Q3 08-09. Same started improving a bit in Q4. However, from April 2009 onwards, yarn prices started rising steeply. Due to recession, exports were down and yarn inventory with importers touched all time low. Once World Economy started improving, these importers have started importing heavily. It increased pricing power of spinners in domestic market also. Moreover, weaving capacity (main consumers of yarn) continued to rise. In this context, performance of Q1 is reasonably good. After providing 1.04 cr. forex loss, Company has incurred loss of 34 lakhs as against loss of 1.71 crs. in corresponding quarter of previous year. Moreover, Q1 Cash Profit is 3.32 crs.
In Q1, Company was executing earlier orders of relatively lower prices. Impact of higher priced orders booked in Q1 will be felt in Q2. Yarn prices continue to be firm whereas R/M prices are at reasonable levels (gone up much less as compared to rise in yarn prices). For 09-10, Company is likely to achieve EPS of Rs. 3.40 and Cash EPS of Rs. 12.35. Presently, huge expansion of weaving is taking place in Bhilwara which is the biggest yarn market in India. On the other hand, no new spinning capacities are in pipeline. Hence, it is estimated that next year, demand for yarn will be much higher and spinning companies like SRSL will have better profit margins. Also, even next year R/M prices will remain soft/reasonable and very unlikely to rise due to huge global capacities.
Valuations: SRSL is available dirt cheap at CMP considering the following:
A. Current Market Cap is just Rs. 18.80 crs. (and Company has a debt of 167 crs.). However, replacement cost of SRSL is nearly Rs. 350 crs.
B. Stock is trading at 1.42 x FY10E Cash EPS. Estimated cash profit is 14.50 crs. which is 85% of current market cap.
C. Stock is trading at 1.10 x FY11E Cash EPS.
D. Stock is available at 4.70 x FY10E EPS and 2.90 x FY11E EPS.
E. Current Market Cap is just 5.70% of FY10E sales.
F. Gross Block is 274 crs. It means, market cap is just 6.45% of gross block.
G. Net Block is Rs. 152 crs. It means market cap is just 11.65% of Net Block.
H. Scrip is trading at 0.40 x FY09 BV.
Thus, by all parameters, SRSL is extremely low priced. Share price has been lying so low as market men are looking only at bad performance of 08-09, without exploring prospects of current and coming years. Definitely, a riskfree buy. Our price Target:
1. Rs. 25/- in 3-6 months.
2. Rs. 40/- in less than a year.
E. Current Market Cap is just 5.70% of FY10E sales.
F. Gross Block is 274 crs. It means, market cap is just 6.45% of gross block.
G. Net Block is Rs. 152 crs. It means market cap is just 11.65% of Net Block.
H. Scrip is trading at 0.40 x FY09 BV.
Thus, by all parameters, SRSL is extremely low priced. Share price has been lying so low as market men are looking only at bad performance of 08-09, without exploring prospects of current and coming years. Definitely, a riskfree buy. Our price Target:
1. Rs. 25/- in 3-6 months.
2. Rs. 40/- in less than a year.
Source: Internet (Valuenotes by Profittrack.com)
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