(BSE Code : 503837)
(F.V. : 10)
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 Uturn
and still such scrips are available at dirt cheap valuations. SRSL is one such company and hence the recommendatio as its Book Value is Rs 40/ and CMP is just 50% of Book value.
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 current year, company has posted sharp improvement in its performance. As again loss of 7.11 cr for 9 month ended Dec 2008, loss for 9 month ended Dec 09 has come down to 88 lacs (that too after exceptional provisioning of 1.48 cr). Shree Rajasthan Syntex is likely to achieve Cash profit of approx 4 cr for Q4.
Valuations : SRSL is available dirt cheap at CMP considering the following: A. Current Market Cap is just Rs. 23.50crs. (and Company has a debt of 167 crs.). However, replacement cost of SRSL is nearly Rs. 350 crs. 10mw Power plant alone with cost more than 50 cr, so current marekt cap is 50% of company’s power plant’s value. B. Stock is trading at 2.05 x FY10E Cash EPS. C.Stock is trading at 1.38 x FY11E Cash EPS. D. Stock is available at 23.52 x FY10E EPS and 3.60 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 8.60% of gross block. G. Net Block is Rs. 152 crs. It means market cap is just 15.50% of Net Block. H. Scrip is trading at 0.50 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 coming years. Definitely, a risk-free buy. Our price Target: 1. Rs. 30/- in 3-6 months. , 2. Rs. 40/- in less than a year. Buying strongly recommended.
Related posts:
{ 3 comments… read them below or add one }
The buying price is not mentioned. The results of all the textile companies are very good. In my views, the turnover for 2010-11 should be more than 400 crores. Net margin @ 2% will give NP of 8.00 crores. EPS will be around RS 7/-. At 7 times PE the share should touch Rs 40-50 by March 2011
REview your recommendation about shree rajasthan syntex after March 2010 results. The NP is in line with your projections. What are the projection for June 2010 and Sept 2010. In how much time the price will touch Rs 40/-.
The performance of the company will improve in the coming quarter due to higher prices/demand of synthetic fibres. But the main reason for upward movement in the share price in the coming months will be its entry into real estate, by converting its property/factory situated at Bagru Ravan 8 Kms away from Jaipur.
Buying is recommended