Tuesday, November 16, 2010

Stock Idea: Bannari Amman Spinning Mills Ltd.

Bannari Amman Spinning Mills Limited (BASM), established in 1995 is a reputed player & a leader in cotton yarn segment in South India. BASM is a part of the Rs. 1,200 crs. Coimbatore based Bannari Amman group. The renowned group has its presence across diversified businesses like sugar, textiles, food processing, granite processing, power generation, transportation, distillery, automobile distribution, healthcare, etc. Since inception BASM has evolved to be a leader in cotton yarn spinning in South India, Commanding a premium in the market for its products. It has two factories for yarn spinning housed in around 7.85 lakh square feet in Tamil Nadu with an installed capacity of more than 1,35,000 spindles. The spinning division is in Dindigul, Tamil Nadu. The weaving division located in Coimbatore, Tamil Nadu, has an installation of 135 Sulzer projectile wider width Looms, in a working space of 2.2 lakh sq feet. The unit specializes in manufacturing superior wide-width cotton fabric in the 500-1000 thread count range. The production capacity ranges from 500-1500 sq mtrs per loom per day depending on the fabric construction. The company has strong presence in Tirupur, Kanpur and Kolkota in the domestic markets. The company is has also been exporting its products to a number of countries like Mauritius, Egypt, Taiwan and Korea.
In October 2005, BASM came with an IPO at Rs 135 per share to fund its expansion plan. On a post issue equity of 15.75 cr., the promoters’ stake is 55.55%.  BASM raised funds for capacity expansion and also to forward integrate into processing and garmenting & home textiles division
Net profit of BASML rose 134.33% to Rs 16.38 cr. in the Q2 ended September 2010. Sales rose 47.27% to Rs 129.52 cr. in the quarter. For the half year ended Sept. 2010, net profit stood at Rs 26.62 cr. on sales of Rs 242.58 cr..  The EPS for first half comes to Rs 16.9.  For the year ended March 2010, BASML had posted net profit of Rs 15.05 cr. on net sales of Rs 355.31 cr.. The EPS stood at Rs 9.5  and the dividend declared was 15%.  The Book Value per share stood at Rs 107
The expansion of its spinning unit, and integration into fabrics and home textiles has enabled the company to compete in the export markets with larger scale of operations. The higher value addition insulates the company from pricing pressures in the highly commoditised cotton yarn industry. The company operates in a niche segment and is a focused quality player earning higher than industry margins. Going forward, BASM is positioning itself as a niche player specializing in fine counts and other value added segment and should continue to earn relatively higher margins. Participating across value chain will help the company to be a One-Stop-Shoppe player and face the growing competition going forward. This will also help the company to customize their product offerings as the global retailers are rationalizing the vendor base based on quality, specifications and pricing. The Bannari Amman Spinning share at Rs 159 trades at 6 times FY11E earnings(Rs 26- Rs 27) and offers an attractive investment opportunity for the medium-long term
Investors can start accumulating the stock at current levels and add more on declines for decent returns of 50%-60% over the next 8-12 months. Accumulate.
Source: Internet (Valuenotes by Sanjay Chhabria)

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