Sutlej Textiles and Industries-Buy Sutlej Textiles; target of Rs 245: Sunidhi Securities

Sunidhi Securities is bullish on Sutlej Textiles and has recommended buy rating on the stock with a target of Rs 245 in its September 14, 2011 research report.

“Sutlej Textiles & Industries (STIL) was incorporated on 22nd June 2005 and was created out of a corporate restructuring exercise in which the textiles divisions of Sutlej Industries (incorporated in 1933) and Damanganga Processors were demerged into Sutlej with effect from July 1, 2005. The restructuring was aimed at making STIL into a focused and an integrated company in the textiles industry with its range of products varying from yarn to fabrics to home furnishing and now garments.”

“STIL belongs to the KK Birla group of companies, one of the top 20 business houses in India. The group is engaged in diverse activities including Fertilizers, Sugar, Shipping, Media, Tea, Coffee, Food Processing, Engineering, Cement, Distilleries, Textile Machinery, Agro-based Industries apart from spinning units. STIL is counted among leaders of the textile industry in India. STIL’s five units are strategically located at J & K, Gujarat and Rajasthan. Its products are: Synthetic and blended yarns, 100% yarns, P/V and P/C fabrics and the garment products supported by the well-known international brands like Modal from Lenzing, Teflon from Dupont, Lycra from Dupont and Lycocell from Lenzing. Currently, the total spindleage capacity is 2.53 lakh. Fabrics account for nearly 7% of revenues.”

“STIL has produced good results for Q1FY12 despite price volatility in the textile industry. Sales have gone up by 19.7% to Rs419.8 crore (Rs350.8 crore). PBIDT on YoY basis fell 8.2% to Rs50.7 crore from Rs55.3 crore in Q1FY11. After interest charge of Rs17.5 crore (Rs14.0 crore), depreciation of Rs17.1 crore (Rs16.8 crore) and provision for tax of Rs2.4 (Rs8.9 crore), net profit declined by 12.2% to Rs13.7 crore (Rs15.5 crore). OP and NP margins have fallen to 12.2% and 3.3% from 15.8 and 4.4% respectively in Q1FY11. Q1FY12 EPS stands at Rs12.6 Vs Rs14.2 in Q1FY11. Q1FY12 CPS (cash earning per share) stood at Rs 28.3 Vs Rs 29.6 in Q1FY11.”

“The improving fundamentals, timely expansion from time to time, consistent modernization and good management quality give strong visibility to revenue & profitability going forward. STIL is expected to post an EPS of Rs61.2 in FY12. At the CMP of Rs176, the share is trading at a P/E of 2.6x and P/BV of 0.6x on FY12E. We recommend BUY with a target price of Rs245 in the medium term,” says Sunidhi Securities research report.