SHRI LAKSHMI COTSYN LIMITED
Buy, CMP Rs.165, Target Rs.250
Shri Lakshmi Cotsyn Limited (SLCL) is in the business of manufacturing and selling a very wide range of products across the textiles value chain. The company was set up to process 100% cotton & blended fabrics, with an installed capacity of 6 million meters per annum (MMPA), which has now reached to around 30 MMPA, in a very short span of time. Besides cotton & blended fabrics, the company has diversified and specialized in technical and safety textiles, with its product range into the arena of Fusible interlining, defense & army products like camouflage fabric uniforms, bulletproof jackets, etc. The company has registered a stupendous CAGR of 51.1% in top line and a 104.4% in the bottom line for the FY05 – FY07 period.
§ The company is in the midst of a large expansion program, whereby the company has planned a capital expenditure of around Rs.7.5 bn. The company has divided the entire expansion in three phases. The first phase and the second phase of the program have seen timely completion and the company has now taken up the third phase of the expansion.
§ SLCL earlier had only around four major product categories namely, Suiting / Shirting, Fusible Interlining, Quilted Fabric and Embroidery Fabric. It has added other high value categories of products like Denim Fabric, Terry Towels, Home Furnishing, Bottom Weight Fabric, Nylon Coated Fabric and Garments to its product basket during the on going expansion.
§ SLCL also plans to set up its own retail chain whereby it plans to set up around 500 stores in two years time. With the upward move in the textile value chain towards branding & retailing of the end products (mostly manufactured in-house), it will be able to improve its margins significantly over the next few years.
§ The company's expertise in the defense products will help it get bigger orders from the Government in future. The Armet JV not only establishes SLCL's prominence in the defense arena, but will also help it in diversifying into a very exciting business segment, where the growth opportunities could be immense.
OUTLOOK & VALUATION
SLCL has been showing robust growth over the last 2 years and we expect the company to continue the growth momentum for another 2-3 years as all its planned expansion come on stream in a phased manner. We expect its Net Sales to increase by 35.7% in FY08E and then by 34.7% in FY09E. We expect its EBIDTA margins to rise to around 15% in FY08 and 15.5% in FY09 and estimate the Profit after Tax to grow by 30.6% in FY08E and then by 56.0% in FY09E. At the current market price of Rs.165, the stock is available at 7.2x and 5.6x its FY08E and FY09E estimated earnings of Rs.23.1 and Rs.29.4 respectively. We expect the stock to perform well as it delivers strong growth numbers over the next few quarters. We are initiating our coverage on the stock with a BUY rating and a target price of Rs.250.
KEY FINANCIALS
| Y/E June | Revenue | APAT | AEPS | EPS | PER | ROCE | ROE | EV/EBIDTA |
| FY06 | 3600.3 | 160.3 | 11.7 | 19.7 | 14.1 | 11.0 | 17.4 | 16.0 |
| FY07 | 6443.8 | 408.4 | 28.4 | 142.4 | 5.8 | 18.2 | 26.8 | 6.6 |
| FY08E | 8743.9 | 533.5 | 23.1 | (18.7) | 7.2 | 17.3 | 18.1 | 5.8 |
| FY09E | 11780.1 | 832.4 | 29.4 | 27.6 | 5.6 | 18.0 | 17.0 | 4.8 |
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