1. Executive Summary:

Gaining Economic Significance The Textile Industry is at the cusp of regaining its

earlier significance in the Indian Economy. Currently, the sector accounts for around 14%

of the total industrial production and around 4% of the country's overall GDP. The sector

contributes valuable foreign exchange for the country as it accounts for nearly 20% of the

country's total exports.

Domestic Industry - Restructuring a growth strategy: The Textile Industry underwent

a lean phase during the late nineties. This was primarily on account of excess capacity,

higher interest costs on account of debt burden, Government policies favouring small-

scale industries, labour laws and slowdown in the global economy among others.

Declining interest rates, growing domestic economy, favourable Government policies,

revival in global economy and growing potential post-quota regime augured well for the

revival in the textile industry. The changing dynamics of the Indian Economy with the

emergence of the upper middle class segment, higher disposable income and increasing

consumerism is providing some demand side relief for the Textile Industry. Further, with

mushrooming of organized retailing, demand for apparels and textiles would get a fillip.

China & India - Obvious beneficiaries under the new regime: Dismantling of quotas from

January 1, 2005 would give more discretionary powers to the global buyers in selecting their

material sourcing avenues. Buyers in EU and US would be free to buy from the cheapest

possible source. Post quota dismantling, global textile trade is expected to gather momentum.

This is expected to increase from US$360 bn (2004) to US$650 bn by 2010. Cost-

competitive countries like China and India could thereby increase their market share at the

cost of other developed and developing nations. China is likely to become the "supplier of

choice". At the same time other low cost countries like India,.

1

India to grab share in Home Textiles, followed by Apparels: India is likely to make

the most of its strength in cotton and low cost skilled labour in increasing its pie of global

textile trade. India's current exports at US$15 bn, accounts for only 4% of the total world

exports, which is expected to grow to US$40 bn capturing a market share of close to 7-

8% by 2010. India is well poised to strengthen its foothold in the global home textiles

segment post dismantling of quotas, which would be followed by higher share in apparels

segment.

Backlash from Developed Countries against China to benefit India: Increasing

dominance of China in global textile trade post quota dismantling is expected to attract

backlash from developed markets like US & EU in order to protect domestic industries.

Thus, protectionist measures against China, is likely to act as a boon for India. India

would be second best choice for the global buyers given its established position in the

global textile trade.

2

2. Company Profile:

IL&FS INVESTSMART LTD:

The HSBC group has acquired 73.21 per cent stake in the listed retail broking firm IL&FS

Investsmart Ltd (IIL) in an all cash deal for Rs 1,084.5. crore ($261 million). The price also

includes Rs 82 crore ($19.4 million) paid as part of a three-year non-compete agreement.

The foreign bank, which paid Rs 200 per share, will also make an open offer to acquire up to

20 per cent of the remaining shares in Investsmart. The open offer price will be announced on

Tuesday. Ms Naina Lal Kidwai, Group General Manger and CEO, HSBC in India, “We got a

good deal here. We paid 1.9 times price to book value, which is much lower compared to the

recent deal of UTI Securities at 5.4 times price to book and that of Geojit Financials at 12.8

times price to book value.”

The stock market seems to have got wind of the deal a while ago as IIL’s share

price moved up by more than 20 per in the last one week. It rose from Rs 164 on May 9 to Rs

198.80 on May 16. Under the terms of the agreement, HSBC will acquire 43.85 per cent stake

in IIL from E*Trade Mauritius Ltd, an indirect wholly owned subsidiary of E*Trade

Financial Corporation and an additional 29.36 per cent stake from Infrastructure Leasing and

Financial Services Ltd. HSBC is expected to change the name of the broking firm once the

regulatory approvals are received. IIL will have to sell its commodity business to obtain RBI

approval as banks or its subsidiaries in India are not allowed to do commodity business.

IL&FS INVESTSMART LIMITED, a financial services company, provides

customized financial management solutions for retail customers, institutional investors, and

corporate clients in India. Its retail offerings include mutual fund advisory, portfolio

3

management, IPO advisory and distribution, and insurance advisory services, as well as

equities and derivatives, and commodity trading services. The company’s institutional

offerings comprise financial advisory and capital-raising services, as well as investing and

trading strategies. In addition, it also provides online trading services. The company was

founded in 1997 and is based in Mumbai, India.

FIG1. Time line of IL&FS Investsmart LTD

4

Key Milestones

1998–99

1999-2000

2000-2001

2004-2005

2003–2004

First full year of equity broking on NSE

Commenced retail operations at Bangalore, Chennai & Kolkata

First full year of equity broking on NSE

Commenced retail operations at Bangalore, Chennai & Kolkata

Commenced equity broking on BSE

ORIX & K Raheja joined as new shareholders

Commenced equity broking on BSE

ORIX & K Raheja joined as new shareholders Commenced

derivative broking on NSE

Launched investment advisory products

Registered as Portfolio Manager

Commenced derivative broking on NSE

Launched investment advisory products

Registered as Portfolio Manager

Acquired 4 branches of Tata TD Waterhouse

Acquired Insurance Training Business

Acquired 4 branches of Tata TD Waterhouse

Acquired Insurance Training Business

ETM as Strategic Investor and SAIF as financial partner

Commenced commodity broking

ETM as Strategic Investor and SAIF as financial partner

Commenced commodity broking

2001-2002

Merchant Banking and Debt on Net merges with IIL

Merchant Banking and Debt on Net merges with IIL

Completed IPO

Completed GDR

Strategic investment in ESOP Direct

Completed IPO

Completed GDR

Strategic investment in ESOP Direct

2005-2006

Acquired Apeejay Securities

Completed business restructuring

Received the Best Performing National Financial Advisor Award for 2006 by CNBC

Crossed over 250 retail outlets spanning 125 Indian cities

Acquired Apeejay Securities

Completed business restructuring

Received the Best Performing National Financial Advisor Award for 2006 by CNBC

Crossed over 250 retail outlets spanning 125 Indian cities

2006-2007

Promotors history IL&FS Investsmart Ltd

Promoted by Infrastructure Leasing and Financial Services Ltd

Shareholders of IL&FS include SBI, ORIX-Japan, IFC-Washington, Credit

Commercial de France, Indivest Pte Ltd(an Affiliate of Govt. of Singapore)

Business operations of the promoter

Infrastructure and Development Services : Sectors such as Surface

Transport and Transportation Systems,Water Supply, Hydro Power,

Special Economic Zone, Port and Environment & Social Management

Group.

Investment Banking : Strategy, Asset Financing, Corporate Advisory,

Capital Markets, Project Financing

Made contributions to the following trusts: IL&FS Infrastructure Equity

Fund, IL&FS Investment Trust –I, II, IV

The Indian Innovation Award-2005: Awarded to IL&FS by President of India

5

Top Management:

The top management of this company comprises of four directors in equal hierarchical

designation. The table shows their responsibility in the organization.

Table No:1

Name & Qualification

Age Position Functional Areas

Mr Sandeep Presswala

39 Chief Operating Officer

1.Served as COO since October 19992. Has over 14 years of experience in Capital Markets 3. Holds a Bachelors Degree in Commerce from Bombay University and is a Chartered Accountant

Mr Sachin Joshi

40 Chief Financial Officer

1. Served as CFO since October 19992. Has over 16 years of Financial Management experience 3. Holds a Bachelors degree in Commerce and is a LLB(Gen), Chartered Accountant and Cost and Works Accountants

Mr Girish Nadkarni

37 Chief Operating Officer

1. Has over 15 years of industry experience in financial services 2. Holds a PGDM from IIM-A,

Bachelors in Commerce from Mumbai University and is a Cost and Works Accountant

6

FIG 2. Product Portfolio

FIG 3. Business Model Universal Broker

7

IIL

Commodity TradingCommodity Trading

Distribution of Financial Products

Distribution of Financial Products Investment BankingInvestment Banking

Portfolio ManagementPortfolio Management

Institutional BusinessInstitutional Business

Loan SyndicationLoan Syndication

Retail BrokingRetail Broking

Insurance BrokingInsurance Broking

Online TradingOnline Trading

FIG 4.Our Retail Offerings

FIG 5.Achievements

8

IIL

Depository Services

Depository Services

EquitiesEquities Investment Advisory

Investment Advisory

DerivativesDerivatives

CommoditiesCommodities

Portfolio Management

Portfolio Management

Distribution of Financial Products

Distribution of Financial Products

Insurance Broking

Insurance Broking

Training ServicesTraining Services

Chosen as The Best Performing National Financial Advisor – Retail Segment at the

CNBC TV 18 National Financial Advisor Award 2006.

FIG 6.Business Strategy

9

Growth Plan

Complete business restructuring

Increase Margin Portfolio book to Rs. 7.5 bn

Accelerate branch expansion through setup of mini branches

Reach an AUM of Rs. 20 bn in MF assets

Strong focus on building new businesses : commodities, online trading

Launch international operations in Singapore. Complete Dubai approvals

Consolidate in the niche position in mid market corporate segment and graduate

to large sized deals

Deepen the focus on research and corporate relationships to grow institutional

business

Network Expansion

Accelerated expansion through mini branches and select franchisees planned

Rapid branch expansion on a smaller format (mini branches) planned in

Mumbai, Delhi and Tier II cities

Existing franchisee relationships to be developed, growth from new franchisees

to be selective

Table No: 2

10

3. INTRODUCTION

A) Purpose: -

Research is the base of every new invention. As far as equity research is concern we

have to create solid base of financial data.

B) Objective of the study: -

To analyze the Macroeconomic factors.

To carry out fundamental analysis of the textile sector.

To analyze 10 major players in the sector.

11

Current Additional Proposed Total

Branches 55 90 145

Franchisees 157 70 227

C) Research Methodology: -

Mr. Roopesh Kumar, after explaining the objective of the project, explained me the

procedure in which the project should be carried out and which data should be taken into

account for research purpose. The approach carried out was Top-to-Bottom approach.

Parameters on which the research and analysis is to be done were jotted down. Different

sources of data required for analysis are given in brief in the coming paragraphs.

D) Data Sources: -

Secondary data: - Publish & readily available data comes under the head of

secondary data. Financial statements, accounting files & other related document are

the example of this. Most of the equity research firm use secondary data for their

work.

1. Websites like www.rbi.org.in, www.ibef.org, Newspapers were the sources

used for economic overview.

2. Fundamental analysis of the textile sector was carried out from various

sources such as:

o Annual Report of Textile sector for last three years.

o Website of textile ministry i.e www.texmin.nic.in

o Other websites like www.ibef.org, www.myiris.com.

3. Analysis of 10 major players was done with the information collected from:

o Annual reports of the company and company’s website

o Book of Financial Management by I.M.Pandey for analysis

purpose.

o Other websites like - www.icicidirect.com, www.myiris.com ,

www.cline.capitaline.com ,

o Business Standard Newspaper

12

4. Literature survey:

A. Textile Sector Overview:

It contributes 20 percent of industrial production, 9 per cent of excise collections, nearly

20 percent to the country’s total export earnings and 4 per cent to the GDP.

The sector employs nearly 18 per cent of employment in industrial sector and 35 million

people of the country, which is the second highest employer in the country.

The total FDI inflow in the country is US $ 450.02, which contributes to 1.31% of the

total FDI inflows of the country.

13

The industry contributes about 25 per cent share in the world trade of cotton yarn. Indian

textile industry contributes about 22 per cent to the world spindleage and about 6 per cent

to the world rotor capacity installed

In fact, in the last six years, an estimated US$ 6.7 billion has been invested in the textiles

sector, aided by the Technology Upgradation Fund (TUF) scheme

The sector accounts for around 14% of the total industrial production and around 4% of

the country's overall GDP. The sector contributes valuable foreign exchange for the

country as it accounts for nearly 21% of the country's total exports.

The Indian textile industry is estimated to be around US$ 52 billion and is likely to reach

US$ 115 billion by 2012. The domestic market is likely to increase from US$ 34.6 billion to

US$ 60 billion by 2012. It is expected that India's share of exports to the world would also

increase from the current 4 per cent to around 7 per cent during this period.

India's textile exports have shot up from US$ 19.14 billion in 2006-07 to US$ 22.13 billion in

2007-08, registering a growth of over 15 per cent.

B. Textiles and Apparel Trade

As per the latest figures available with the Ministry of Textiles, India exported

textiles worth US$ 15.27 billion during April-December 2008. Indian textiles, handlooms and

handicrafts are exported to more than 100 countries, with the US being the largest buyer.

Readymade garments (RMG) are the largest export segment, accounting for almost 41 per

cent of total textile exports. RMG exports from India were worth US$ 9.06 billion in 2007-

08. During April 2008-February 2009, RMG exports were worth US$ 8.59 billion, an

increase of 4.86 per cent over the corresponding period of 2007-08. Significantly, apparel is

14

the second largest retail category in India. The domestic apparel retailing industry is

estimated to be round US$ 2.7 billion and in spite of recession is likely to grow at 5-7 per

cent in 2009-10. The domestic organised garment retailing clocked a growth of 13-14 per

cent for year ended March 2009.

C. Investments in the Textile Sector

The domestic textiles and apparels market in India is witnessing strong

growth owing to a young population, an increase in disposable incomes and a rapid growth in

organised retail. Consequently, the domestic market is estimated to grow to over US$ 50

billion by 2014. Significantly, the textile sector is estimated to offer an incremental revenue

potential of no less than US$ 50 billion by 2014 and over US$ 125 billion by 2020. The

textile industry has attracted FDI worth US$ 850 million during August 1991 and December

2008.

Textile and Apparel Sourcing

India is fast establishing itself as a global textile and apparel-sourcing hub with its abundant

multi-fibre raw material base, well established production bases, design capability and skilled

labour force. According to the Confederation of Indian Industry-Ernst & Young Textiles and

Apparel Report 2007, the Indian sourcing market is estimated to grow at an annual average

rate of 12 per cent from an expected market size of US$ 22 billion-US$ 25 billion in 2008 to

US$ 35 billion-US$ 37 billion by 2011. Simultaneously, world's cutting edge fashion brands

such as Hugo Boss, Diesel and Liz Claiborne are stepping up their sourcing from India.

15

Technical Textiles

Technical or functional textiles are those textiles that have some functional properties

attached to it and are different from traditional textiles that are merely used for adoration. The

technical textiles market which at present is around US$ 80.1 million and growing at a

healthy pace of about 12 per cent, is expected to touch US$ 13.7 million by 2012-13.

Keeping this in mind, the government has designed Centres of Excellence for agrotech,

buildtech, meditech and geotech group of technical textiles at an outlay US$ 8.97 million.

The government will shortly launch a US$ 122.42 million Technology Mission on Technical

Textiles and also create a Development Council for Technical Textiles. In an effort to

promote the technical textile industry in the country, the central government has formed a

committee to put in place a regulatory framework for usage of technical textile products in

different areas

.

D. Global Textile Scenario- Protectionist Pre-Quota Regime:

Developed economies like the US & European markets resorted to protectionist

measures against low cost Asian Textiles and Garment producers since the 1950s in order to

safeguard their domestic industry. These protectionist measures were formalized in 1974

through the 'Multi Fibre Agreement (MFA)'. Since 1974, up to the end of Uruguay Round in

1994, trade in global textiles and clothing industry were governed by over 1300 bilateral

quotas, which were part of the MFA. Subsequently, quotas were imposed on Asian countries

by the developed countries to curtail imports of cheaper products into their country. As a

result, despite Asian countries having a competitive advantage, many non-Asian countries

16

enjoyed the quota and duty free access to the developed markets. This allowed them to

compete effectively with Asian producers. The quota system also favoured the under

developed countries, whose export quotas were higher than those of developing countries.

This enabled textile industries in Bangladesh and Sri Lanka to post higher growth rates,

despite having poor raw-material base.

In 1995, the Agreement on Textiles and Clothing (ATC) was signed, with the

WTO replacing the GATT. ATC aimed at phasing out quotas on imports over a decade,

thereby resulting into total dismantling of quotas from January 1, 2005. The period between

1995 and 2005 was a period of slow phasing out of the quota restrictions completely over a

period of 10 years. 16% of textiles / garment items were removed from quota restrictions

from 1995 with the ATC coming in place. This was expanded to 18% by 2002 and fully

phased out by January 2005.

India's textile exports amounted to around US$15 bn, constituting 4% share of the

global textile import market. Though small, as compared to China's 16% share, India is

expected to emerge as the world's second most important textile / garment manufacturing

centre. US imports of cotton pillowcases and cotton sheets were the highest from India at

20% and 18% respectively. China dominated the apparel market in the two countries with a

market share of 70%. This was despite the close proximity of other powerful competitors

such as India, Bangladesh, Pakistan, Vietnam and Indonesia.

E. Dismantling of Quotas – Ushering in a New Era

Indian textiles industry is at the crossroads with the phasing out of quota regime on

January 1, 2005 and the full integration of the textiles sector in the WTO (Box 7.1). Over the

last few years, preparations have been on for meeting this challenge and opportunity by

revamping textile legislation,

17

Impact of the expiry of agreement on textiles and clothing (ATC) on India

Most of the studies conducted to estimate the impact of ATC expiry on textile trade, share

the finding that some Asian countries are most likely to benefit from the dismantling of

the quotas. They predict a substantial increase in market shares for China and India.

According to a recent study by CRISIL, the Indian textile and apparel industry can

achieve a potential size of US$ 85 billion by 2010, with a domestic market size of US$ 45

billion and nearly 60 per cent of exports comprising of garments. The potential translates

to creation of 12 million job opportunities, 5 million directly in the textile industry, and 7

million in allied sectors.

India has a natural competitive advantage in terms of a strong and large multi-fibre base,

abundant cheap skilled labour and presence across the entire value chain of the industry

ranging from spinning, weaving, and madeups to manufacturers of garments. But, with

prices expected to fall in the post- quota regime with increased international trade and

competition, such an advantage may not be enough. Enhanced efficiency and productivity

is a must to meet this emerging challenge of global competition. Further, there is an

increasing trend from the world buyers towards reducing the number of vendors and

opting for vertically integrated companies to eliminate inefficiencies in the supply chain.

The Indian companies have been expanding capacities in anticipation of the opportunities

emerging from the phase-out of the quota system. Indian textile industry needs to make

for more investments in the coming years to capitalse on the post quota regime

opportunities. Assuming a capital-to-turnover ratio of one, there is a need to invest Rs. 1,

40,000 crore in the next six years to achieve the vision of reaching the textile and clothing

exports target of US$ 40 billion by 2010 and to meet the growing domestic demand.

18

Close attention needs to be paid to the composition, volume and value of products as well

as competitive strengths vis-à-vis countries like China, Sri Lanka, Bangladesh and

Pakistan. Textiles contribute around 20 per cent of India’s total annual export earnings.

Despite India’s comparative advantage, a number of constraints continue to restrict the

growth of Indian textile markets abroad. These include:

o More than 60 per cent of the fabric production is decentralized in the power loom

sector, which is unable to compete with the cheaper and flawless fabric from state

of the art plants of China or Taiwan.

o Infrastructure constraints.

o Emergence of Preferential Trade Arrangements (PTA) as an important factor in

the global textile trade.

Ensuring a technology-induced self-sustained and multi-fibre base to enlarge its share in

global exports of textiles and clothing, and maintaining its present leading position in the

domestic market despite the removal of import restrictions, remain as the major

challenges before the Indian textile industry.

Several steps have already been taken to improve India’s textile industry. Apart from the

setting up of the Technology Upgradation Fund Scheme (TUFS), these include new

schemes of Apparel Parks for Exports, and Textile Centres Infrastructure Development

Scheme, de-reservation of the garments sector, increase in investment ceilings, and

introduction of a Technology Mission on Cotton to improve the productivity and quality

of cotton. FDI is freely allowed in the sector. Basic customs duty on designated textile

machinery and spare parts has been reduced and the Additional Excise Duty on Textiles

& Textile Articles (AT&T) and Additional Excise Duty (Goods of Special Importance)

Act has been abolished. The following charts shows Market share of various countries in

Pre-Quota and Post-Quota regime to the U.S market:

19

Fig 7. Pre-Quota & Post-Quata Regim to US Market

F. Structure of textile industry:

The Indian Textile industry has a complex structure. On one hand it is marked

by the presence of large-scale production organized players, while on the other hand are the

numerous small-scale independent units.

Fragmentation in the industry, per se, is not bad. Rather it has positives attached to it

like check of price rise for consumers, possibilities of running smaller lots. However the

negatives are more than the positives in the Indian context. Small size does not present

20

India4% China

16%

Hong Kong9%

Rest of America

16%

Others36%

Mexico10%

EU5%

Bangla4%

BEFORE

AFTER (Estimated)

China50%

Others15%

Thailand3%

India15%

Rest of America

6% Hong Kong6%

Bangla2%

Mexico3%

economies of scale and hence reduces the absolute margin available that could have been

used into technological advancement, research and development and brand building.  

India’s textile industry comprises mostly small-scale, non-integrated spinning,

weaving, finishing, and apparel-making enterprises. The figure below depicts the Overall

value chain and the number and type of units within the industry.

Table NO: 3

PROCESS

UNIT

Spinning MillsWeaving/ KnittingUnits

ProcessingUnits

Apparel Manufacturers

OUTPUTFibreCotton, Jute, Silk, Wool, Man-made

Yarn FabricProcessed Yarn

Garments

#UNITS

1140 SSI Units

1566 Large Scale Units

Handlooms-3.9 Mn

Powerlooms- 1.85Mn

Organised Sector-0.11Mn

2100 Units

77000 Units (Mostly Small Scale)

Spinning:

From the statistics it can be seen that there has been nearly two-fold increase in the

export of blended and non-cotton spun yarn. There has also been phenomenal ten-fold growth

in the export of filament yarn since the year 1996-97. Cotton yarn contributes to about 80%

of the total value of yarn exports

Yarn production has been growing at a compounded annual growth rate of 4.5 per

cent a year, from 1990 to 2004. While man-made and blended yarns grew at annual rates of

21

Composite Mills

Switch (Garment / Apparel)

Processing

Weave/Knit

SpinRaw Material

8.6 Percent and 9.1 per cent respectively, production of cotton yarn grew at a lower rate of

3.2 per cent per year. With an installed capacity of 40 million spindles, India accounts for

about 22 Percent of the world’s spindle capacity.

Weaving and Knitting:

The weaving sector ranges from the handloom units producing around 5 metres a day

to mills with advanced machines, each producing 250-300 metres in an eight-hour shift. The

non-mill sector is also referred to as the Decentralized Sector that includes powerlooms,

handlooms, and the hosiery sector. The decentralized sector produces around 95% of the total

cloth in and is the major employer, income generator, as well as export earner for the

weaving the country and knitting industry.

The knitting industry concentrated primarily in the unorganized sector, only a handful

of large organized players. Knitting is concentrated primarily concentrated in cities of

Tirupur and Ludhiana located in southern and northern India respectively. Fabric output has

been growing at 5.5 per cent a year between 1990 and 2003, drive n primarily by the small

scale, independent powerloom sector.

Fabric processing:

The processing sector is one of the weak links in the textile supply chain. The

processing industry is dominated by Hand processing which constitutes 82.5 per cent of the

total number of processing units. Power processing units can be divided into Independent

Process Houses that do job work and those with composite mills that process their own

fabric. Around 89 per cent of power processing units are Independent.

22

Up gradation in this segment is also intended to promote integrated large units with an

improved quality and lower cost structure. Hand Processors will be phased out in a process.

Garment Manufacturing:

Garment manufacturing is one of the most fragmented sectors of the Indian textile

industry. Cutting, sewing and furnishing are the three major operations in the garment sector.

Garment & Apparel sector is structurally a low wage labour-intensive industry. The

competitive advantage of players in this market segment is dependent on the ability to

produce designs that capture and influence tastes and preferences of consumers in addition to

cost effectiveness.

Labour cost is one of the major factors in deciding the total cost of production. It

constitutes nearly 69%of the total cost and as a result of this lead to relocation of production

base many times. Apparel segment is one of the least capital-intensive segments in the entire

textile chain. Fixed capital cost per unit of production is lowest as compared to spinning &

weaving, processing and even other textile manufacturing. The apparel industry is one of

India's largest foreign exchange earners, accounting for 12% of the country's total exports.

The garment industry comprises manufacturers of ready-made garments for either the

domestic or export markets or, in certain cases, both.

The focus of the industry is increasingly shifting towards marketing, brand names,

design and retailing complexes and value-added diversified production such as ‘technical’

textiles. Under the post quota regime, both India and China are expected to almost double

their market share in the global apparel market. China is undoubtedly expected to emerge as

the biggest beneficiary of the dismantling of quotas even in the apparel segment.

G. Exports:

Exports of textiles and clothing from India have also been growing strongly over the

last 10-15 years. So far, the textile industry has played a significant role in the country's

23

exports contributing valuable foreign exchange for the country. The sector accounts for

nearly 20% of the country's total exports. During the last decade, from FY1994 to FY2009,

textiles exports have grown at a CAGR of 6.4% to US$13.2 bn.

Though, textile exports in value terms have shown steady increase over the years, in

percentage terms its share in total exports has declined from 28.7% (FY1995) to 20.7%

(FY2009). The fall in contribution to total exports is primarily due to rising contribution from

the services sectors like IT to the total exports. To some extent the slowdown in the textile

industry is also reflected in these numbers. However, 20.7% is significant enough to make an

impact on the Indian Economy.

With a consistent growth of nearly 5 per cent in the domestic market and the opening

up of exports options post MFA, India’s textile industry is poised to grow further and take up

a more significant position in the domestic and global markets. Following is Break-Up of

Exports of India over the years:

H. Government policies

In an effort to increase India's share in the world textile market, the government

has introduced a number of progressive steps.

De-reservation of readymade garments, hosiery and knitwear from the small-scale

industries sector in end-2000.

Technology Mission on Cotton was launched in February 2000 to make quality raw

material available at competitive prices.

Technology Up gradation Fund Scheme (TUFS) which was launched to facilitate the

modernization and up gradation of the textiles industry in 1999 has been given further

extension till 2011-12.

24

40 textile parks are being set up under the Scheme for Integrated Textile Parks (SITP) which

will attract an investment of US$ 4.38 billion.

Major Schemes: The other number of schemes launched for the improvement of quality

and modernization of technology were:

o Technology Mission on Cotton (TMC)

o Generalized System of Preferences (GSP) Scheme

o Powerloom Schemes 

o Textile Workers’ Rehabilitation Fund Scheme (TWRFS)

o Jute Technology Mission (JTM)

o Jute Manufactures Development Council

o National Centre for Jute Diversification

I. .IMPACT OF UNION BUDGET 2009-10

For the Indian textile industry, 2008-09 was a challenging year due to the slowdown in

the markets of importing countries, high cotton prices, high interest rates and tight credit

availability. Moreover, the Indian textile industry continues to be characterized by a high

level of fragmentation across the value chain, and a weak weaving and processing sector.

Measures taken so far to boost the sector, which include a 2 per cent duty credit scrip on

exports to the EU and US and an interest subvention of 2 per cent on pre and post shipment

export credit, have only had a marginally positive impact.

Cotton yarn and cotton

Cotton yarn demand is expected to grow at a CAGR of 3-4 per cent (volume terms) in

the medium-term, supported by the domestic market, which accounts for 60 per cent of total

demand. However, the overcapacity situation is likely to persist, particularly in the spinning

25

segment.

CRISIL Research expects a bumper Indian cotton crop and the easing of the global

demand-supply situation to lead to cotton prices softening to levels of Rs 52-57 per kg in

cotton season 2009-10. However, overcapacity will compel spinners to pass on the benefit of

lower cotton prices to consumers, leading to continued margin pressure.

MMF

Polyester demand is estimated to grow by 8-9 per cent. Despite this, CRISIL

Research expects the polyester industry to be plagued by overcapacity over the next 2 years.

Since 2006-07, capacity has increased at a CAGR of 18 per cent, while demand has increased

at a CAGR of only 8 per cent. Polyester feedstock (PTA and MEG) prices are expected to

decline from their 2008-09 levels due to an easing demand-supply situation in the feedstock

markets and the softening of crude oil prices from their peak levels. However, overcapacity

will compel polyester producers to pass on the benefit of lower input prices to consumers.

Readymade garments

Garment exports have been severely impacted post September 2008 on account of

the economic slowdown in the US and the EU27. Margins of exporters have not improved

despite 20 per cent rupee depreciation from January 2008 to June 2009, as weak demand

forced them to pass on the benefit to customers. India's market share (in value terms) in both,

the US and the EU, has remained stagnant at 5.7 per cent (January-March 2009 vis-à-vis

January-March 2008) and 3.6 per cent (January-December 2008 vis-à-vis January-December

2007) respectively.

The highly fragmented nature of the industry and a weak weaving and processing sector has

hindered India's attempts to gain a larger share of the global apparel market. Greater

investments in the weaving and processing segment hold the key to improving India's

competitiveness in the global apparel market. Although the domestic market has continued to

26

exhibit growth of 6-7 per cent, margins of manufacturers are under pressure as they have had

to resort to discounting in order to push volumes.

IMPACT FACTOR:

A) The excise duty on pure cotton textiles beyond the fibre stage which had been reduced to

zero in the stimulus package has been restored to a 4 per cent optional duty. When the excise

duty had been reduced to zero, companies with accumulated CENVAT credit were left with

no avenue to use that credit. Now, with the excise duty being restored to its earlier 4 per cent

optional level, companies will be able to utilise their accumulated CENVAT credit.

B.) The excise duty on man-made fibres and yarns has been raised to 8 per cent from the

earlier level of 4 per cent. While this will increase polyester prices by Rs 2.5 per kg, it will

not affect demand as polyester continues to be cheaper than cotton and substitution will

continue.

C). The extension of 2 per cent interest subvention on pre and post shipment export credit by

a period of six months till March 31, 2010, will result in interest costs for exporters declining

by around 1 per cent.

5. Industry SWOT Analysis:

Strengths:

Abundant raw material availability which is allowing the industry to control costs and

reduce overall lead times across the value chain.

27

Low cost skilled labour

Growing domestic markets

Dismantling of Quotas

Indian textile machinery manufacturers are able to produce at competitive prices

sophisticated machines of higher speed and production capability, which is supported

by the well developed IT capabilities of Indian firms

Weakness:

Fragmented industry, which is leading to lower ability to expand and emerge as

world-class players.

Historical regulations had affected the industry a lot and also had resulted in a

complex industry structure.

Lower cost competitiveness has hampered the ability to compete with lower cost

global players.

Technology obsolescence has resulted in the need for significant technology

investments to achieve world class quality

India's logistic disadvantage due to its geographical location can give it a major

thumbs-down in global trade.

Opportunities:

Rising income and growing purchasing power

Should invest in trend forecasting to enable the growth of the industry.

Should keep focus on new product development.

Quota restrictions on china till 2008.

Threats:

Increasing competition from domestic as well as global players.

28

Ecological and social awareness may lead to increase the pressure on the industry to

follow international labour and environmental law.

A rapid slowdown in the denim cycle poses risks to fabric players.

Threats from new entrants: smaller players who cannot venture into the global

markets are flooding the domestic markets with excess supply, thus weakening the

pricing scenario

China is the biggest threat to India’s textile industry. China’s scale, Infrastructure and

cost competency give it an edge

As one can comprehend from the above analysis, the potential for the sector's growth are

ample, but the trick lies in competing effectively against rivals. Consolidation of the industry

and delivery of better quality at effective rates and minimum lead time would certainly help

the players surmount all competitive pressures

29

6.1 Aditya Birla Nuvo Ltd. (IRIL):

30

COMPANY

ANALYSIS

Market data: Business Profile:

Table No: 4

Indian Rayon and Industries Limited incorporated in 1956

is an Rs1800 Cr. multi-product and multi-locational

industrial conglomerate, a part of Aditya Birla Group, the

organization of a long, illustrious and magnificent legacy

spread over a period of 125 years. The Group is

consolidating its position under the chairmanship of Shri

Kumar Manglam Birla taking the aspirations from the

legacy of a leading industrialist, Late Shri Aditya Vikram

Birla.

IRL has stakes in JVs like Indo Gulf Corporation Ltd., Mangalore Refinery & Petrochemicals

Ltd., Birla AT&T Communications Ltd. etc. On September 1, 1998, IRL demerged it´s

cement business to Grasim Industries Ltd. (GIL). In return, GIL issued 3 equity shares for

every 10 held by IRL Shareholders.

The company entered the retail garment segment by acquiring Madura Garments, the

readymade garment division of Madura Coats Ltd. This acquisition brought into IRLs fold

major apparel brands like Louis Philippe, Van Heusen, Allen Solley, Peter England etc. The

company has a 30 percent market share in the 12 billion rupees branded mens wear sector.

The subsidiaries of Indian Rayon and Industries Ltd are Birla Sun Life Insurance Company

Ltd, PSI Data Systems Ltd, Birla Technologies Ltd, Laxminarayan Investment Ltd,

Transworks Information Services Ltd, Transworks Inc. USA and Aditya Vikram Global

Trading House Ltd. The group manufactures products such as viscose staple fibre, non-

ferrous metals, cement, viscose filament yarn, branded apparel, carbon black, chemicals,

fertilisers, sponge iron, insulators and provides financial services.

31

Current Market Price

699.55

Market Capitalization ( (Rs in Crs)

691.55

Free Float (%) 71.36 52 Week High 1000.00 52 Week Low 411.3 Dividend Yield (%) 0.71 Dividend Payout (%)

24.14

Stock Exchange BSE

Total Revenue has been increased from Rs.1860.9 Cr. in 07-08 to Rs. 2610.4 Cr. in 08-

09, a total of 40% increase Fig No: 8 in the total revenue (Post-

merger).

The percentage share of Textiles in the total composition seems to be decreasing by 5%

but there is an increase of 15% in terms of amount i.e. Rs.524.8 Cr. as compared to

previous years Rs.456.1 Cr.

The Total Textile, Garment and VFY (All Textile Industry related segments) accounts to

nearly 60% of the company’s total revenue.

Garment sector showed the highest increase in revenue over the last year. The segment

showed an increase of 31% over last year accounting Rs.620.5 Cr. as compared to

Rs.472.6 Cr

Recent Development and Future plans:

The company has informed that Transworks (a wholly owned subsidiary of the company)

is proposing to acquire up to 100% of the shareholding in Minacs Worldwide Inc.,

Canada’s leading BPO provider on a fully diluted basis through an open offer at a total

outlay of $125 million (approximately).

The combined holding of the Aditya Birla Group companies in Idea now stands at 98.3%

by acquiring the entire 48.14% holding of the Tata Group in Idea Cellular Ltd., for a total

consideration of Rs 44060 million constituted between the company 35.7%, Birla TMT

Holdings Ltd 44.9%, Grasim Industries Ltd 7.6%, and Hindalco Industries Ltd 10.1%.

Financial Analysis:

Table No: 5

Particulars Twelve Months Ended 4th Qtr Ended

 Mar-09

Mar-08

Mar-07

Mar-06

Mar-02

31.03.09

31.03.08

Net sales2642.00

1844.21

1543.31

1403.01

1371.55 752.00 484.20

32

Growth (%) 43.26 19.50 10.00 2.29   55.31  EBITDA 413.50 257.76 283.01 239.58 206.18 123.30 69.80Depreciation/Amortization 111.80 77.74 77.59 67.81 69.61 35.50 20.60EBIT (Operating Profit) 111.80 77.74 158.97 110.87 81.62 87.80 49.20Margin (%) 4.23 4.22 10.30 7.90 5.95 11.68 10.16Interests 111.80 77.74 77.59 67.81 69.61 11.70 5.20PBT 261.10 157.08 181.43 128.07 74.07 76.10 44.00Taxes 84.80 43.36 50.15 22.74 30.61 21.90 4.50PAT 176.90 113.72 131.28 105.33 43.46 54.20 39.50Margin (%) 6.69 6.16 8.50 6.82 3.15 7.20 8.15

As can be seen that the percentage growth in Net Sales is been tremendously increasing

year by year and Net Profit margin is increasing steadily. As there is increase in Sales,

this increases the profit in terms of amount.

Net Sales increased by 55% to Rs 752 crore as against Rs 484.20 crore in the

corresponding previous quarter ended Mar’05. This is inclusive of Rs.368.98 crore

reached by its fertilizers business, incorporating the period from September to March.

Garments, Carbon Black and textiles have been the growth drivers, while on a

consolidated basis sales increased by 68%.

The revenue from Garments increased by 45%, while that of Carbon Black and Textiles

increased by 26% and 21% to Rs 155.40 crore and Rs 147 crore respectively. The

contribution to profitability of these segments increased by 191%, 11% and 59%

respectively due to higher margins.

Ratio Analysis:

Table No: 6

RATIOS 2008-09 2007-08 2006-07 2005-06 2004-05 Basic           EPS (Basic and Diluted) 21.18 18.99 21.92 17.59 7.26

33

CEPS 39.36 35.80 38.88 36.21 29.32 BV 264.40 226.10 211.68 195.50 182.14 EV 6096.85 2803.84 1490.16 710.32 881.96 Profitability           ROE (%) 8.01 8.40 10.36 9.00 3.98 ROCE (%) 8.74 9.75 12.27 11.94 8.81 Valuation           P/E 31.11 21.03 8.62 4.28 9.89 P/BV 2.49 1.77 0.89 0.39 0.39 P/CEPS 16.74 11.15 4.86 2.08 2.45 EV/Operating income 20.21 15.58 7.25 4.14 6.46 EV/Sales 2.31 1.52 0.97 0.51 0.64 Leverage Ratio           Debt/Equity 1.56 1.36 1.32 1.23 1.42 Other           Int. coverage 2.70 2.32 2.65 2.53 1.96 Dividend Payout 24.14 24.02 20.63 24.05 45.47

Findings and Recommendations:

On a standalone basis, All parts of the business continue to generate exciting cash to the

company. On a consolidated basis the key monitorable in IRIL’s business lies in the

valuation of its insurance business.

The growth in insurance and the positive momentum gained by BSL cannot be ignored

for long.

Looking from the primary valuation point of view Company is able to attain exciting P/E

for this year, which is well above the industry P/E where as the Debt/ Equity ratio is less

as compared to others in the industry.

Looking at the other ratios, Company is also good in EPS and looking at the EPS over the

years companys earning power over the years per share is well enough over the other

major players in the industry.

The company is strongly believes in in-organic route and also risk in the company is

minimized due to its diversification.

34

Future growth in the VFY business will be determined by changing trends in fashion,

improvement in realizations and energy costs so company needs to look after it.

In textile segment, company needs to improve the delivery capabilities and high input

cost in synthetic to be more competitive.

The company had come out with the good results this year and is expected to do well in

the future with the capex planned for 2009 of Rs.410cr.

Looking at the overall fundamentals, company’s performance in the recent past and

company’s strategy to grow via in-organic route, i would like to recommend BUY the

stocks right now and investors can look at the company in the long term prospective.

6.2 Alok Industries Ltd.:

Market data: Business Profile:

Table No: 7

35

Alok Industries is an integrated new generation textile

company promoted by the Jiwrajka family. Company began

its work as fabric traders and suppliers to the garment

industry in 1986 as a private limited company. Beginning

with texturising of yarn, the company steadily expanded into

weaving, knitting, processing, home textiles and readymade

garments. It also controls an extensive embroidery operation

through its sister concern, Grabal Alok Impex Ltd.

In 1995 company made a Financial and Technical collaboration with Grabal, Albert Grabher

Gesellshaft GmbH & Co of Austria for manufacture of embroidered products through a Joint

Venture Co. viz Grabal Alok Impex Ltd. Alok Industries Limited recognizes the importance

of managing effectively and seeking continuous improvement in health, safety and

environmental matters as an integral part of its business activities.

Today, Alok is amongst the A Group listed companies of India's leading stock exchanges. In

less than two decades, it has grown to become a diversified manufacturer of world-class

apparel fabrics selling directly to garment manufacturers and exporters not only in India, but

the world over. The company has consistently been in profits since 1998 and has a very

sound track record. It has exhibited a top line CAGR (Compounded Annual Growth Rate) of

22.5% and bottom line CAGR of 26% in the last five years.

Promoters29%

FII's19%other institutional

investor23%

Indian public10%

Others19%

Share Holding Pattern

36

Current Market Price 57.55

Market Capitalization ( (Rs in Crs)  937.09 Free Float (%) 71.09  52 Week High 99.2 52 Week Low 54.2 Dividend Yield (%) 2.09 Dividend Payout (%) 6.32  Stock Exchange BSE

Fig No: 9

Key positives:

Has created significant capacities to meet the increasing demand of importers.

Established relationship with renowned clients in the apparel and home textiles.

Exports in Home textiles are growing at a higher tick, growth momentum expected to

continue.

Fruits of its massive capital expenditure to accrue over the next years.

AIL is one of the few fully integrated textile players present in the Indian textile industry.

This is important, because international importers want vertically integrated players with

a presence from yarn to garments.

Company is already supplying to renowned manufacturers, exporters and stores like

GAP, JC Penny, Wal-Mart, Target, etc.

Investment Highlights:

Alok has the presence in the entire value chain of textiles and offers fully integrated

facilities for yarn texturizing, weaving, knitting, processing, made-ups and garments

besides having the largest processing capacity in India. Thus it is very well positioned as

a ‘One-Stop-Shoppee’ for its marquee global clients.

It has put plans in place to increase its exports by focused expansion in Home Textiles

and Garmenting segments. It has a target to take export share to 50% of the sales by

FY2010 from 10% in FY07 and 27.39% in FY08.

The company is looking to improve its product mix to generate better operating margins.

The high-end, high-margin products like home textiles which contributed only around

17% of the business in FY05 is expected to contribute around 43% of the revenues of the

company by FY07E. The total high margin business (OPM of 22-25%) share is expected

37

to increase from 73% in FY08 to 79% in FY10E. This will increase the overall OPM of

the company from 19.5% in FY08 to 21.5% in FY10E.

Recent Developments and Future plans:

Alok Industries is all set to start a garment-manufacturing plant in Sayli at an investment

of Rs 1,200 crore.

Company has converted 20 FCCB and issued & allotted 6,06,949 equity shares at the face

value of Rs 10 each for cash at a premium of Rs 61.58 per share as a outcome of it.

Directors of Alok Industries transfer’s shares to the promoter group company Niraj

Realtors and shares pvt. Ltd.

Expansion plans:

The company is undergoing expansion in two phases:

o Phase I: Home Textiles, Apparel Fabric, Garmenting & Made-ups

o Phase II: Ring Spinning, Terry Towels, Yarn Dyeing, Processing – Normal, ERP and

Building

As all the above capacities of the company become fully operational, the revenues and net

profit of the company are expected to grow at a CAGR of 25% and 40% respectively.

Financial Analysis:

Table No:8

ParticularsTwelve Months Ended

4th Qtr Ended

  Mar-09 Mar-08 Mar-07 Mar-06 Mar-0531.03.09

31.03.08

Net sales 1418.76 1224.50 1068.80 795.41 564.97 407.74378.22

Growth (%) 15.86 14.57 34.37 40.79   7.80   EBITDA 299.83 244.71 198.40 137.14 98.14 89.09 66.00 Depreciation/Amortiz 75.76 57.56 38.28 25.42 15.74 21.57 15.07

38

ation EBIT (Operating Profit) 224.13 187.15 160.12 111.72 82.40 67.52 60.93

Margin (%) 15.80 15.28 14.98 14.05 14.58 16.56 16.11 Interests 69.72 63.68 66.40 51.51 39.17 17.26 16.41 PBT 154.35 123.51 92.57 59.36 42.45 50.26 44.52 Taxes 44.16 34.26 21.49 17.05 4.54 15.57 13.49

PAT 110.19 89.25 71.08 42.31 37.91 34.69 31.03 Margin (%) 7.76 7.28 6.65 5.31 6.71 8.50 8.20

The Company achieved sales of Rs.407.74 crores for the quarter ended March-06, a

growth of 7.80% over the corresponding previous quarter. The maximum growth is

witnessed in Home Textiles division, where as Apparel fabrics segment achieved

marginally lower sales.

Export (including incentives) increased to Rs 117.41 crores for the quarter ended March-

06, a growth of 26.22% over the corresponding previous quarter. The increase in exports

is mainly on account of increase in the export of Home Textiles and Garments. Exports

for the year ended increased by 26.79% to Rs.388.66 Cr.

EBITDA increased to Rs.89.09 crores as compared to Rs.76.00 crores an increase of

17.22% over the previous corresponding quarter. The increase in EBITDA is due to the

benefit of backward integration into weaving and the increase in sales of value added

product and higher sales.

It can be seen from the financials over the year that the growth rate of sales have been

more in the previous years but had came down in the recent past.Looking at expansion

plans it is expected to increase and the profit margin is been steadily increasing and is

expected to increase a lot in future.

Ratio Analysis:

Table No: 9

39

RATIOS  2008-09 2007-08  2006-07  2005-06  2004-05 Basic          EPS 6.57 6.03 7.93 7.34 8.78EPS (Diluted) 5.21 6.03 7.83 7.34 6.15CEPS 12.87 15.70 19.78 20.98 15.36BV 56.72 50.67 44.46 44.93 45.10EV 2621.53 1723.39 1069.21 593.11 473.68Profitability          ROE (%) 12.34 13.14 18.23 16.56 19.88ROCE (%) 7.38 9.37 13.16 13.87 12.80Valuation          P/E 8.38 10.11 4.67 1.63 1.06P/BV 0.97 1.20 0.83 0.27 0.21P/CEPS 4.27 3.88      EV/Operating income 8.74 7.04 5.39 4.32 4.83EV/Sales 1.85 1.41 1.00 0.75 0.84Leverage Ratio          Debt/equity 3.40 2.94 3.10 3.13 3.34Other          Int. coverage 3.21 2.94 2.39 2.15 2.08Dividend Payout 6.32 31.28 16.39 16.64 8.47

Findings and Recommendations:

With its capex plans in place for backward integration, as for moving up the value chain,

Alok is turning out to be a fully integrated textile house.

Alok`s capacities in the apparel fabric segment went on stream in February 2006. The

benefit of the same would get reflected in the FY07 performance.

Alok is also not averse to growing via the inorganic route. However it has a selective

strategy.

The concerted efforts of the company would lead to volume growth and the changing

product mix will lead to enormous improvement in the margins. The increase in the share

of value added products would definitely increase the realizations of the company.

40

Looking from the primary valuation point of view, Company’s current P/E trading at 8.38

and comparing it with the other majors in the industry company is far low from the

others.

Company has taken a lot of debt under TUF Scheme for its expansion plan making its

Debt/Equity ratio high but it should be seen as smart move and not be taken as concern.

Lack of EPS growth due to dilution is likely to limit the stock’s upside potential over the

next 12 months.

Looking at the expansion plans carried out in two phases, renowned name of the company

outside the country and due to dismantling of the quotas, company is believed to do well

in future but the concern which will limit the share price will be dilution of equity. So it

would be recommended that share of the company to be HOLD as of now and expect

good returns in future

6.3 Arvind Mills Ltd.:

Market data: Business Profile:

Table No:10

Arvind Mills Ltd. (AML) is the flagship company of

Lalbhai Group was incorporated in 1931 to manufacture

cotton textiles. AML, for long has been one of the leading

cotton manufacturing company in the country producing

conventional suiting fabrics, shirting fabrics, sarees has

41

Current Market Price 57.25

Market Capitalisation (..Rs in Crs)  1198.70 Free Float 66.32  52 Week High 143.90 52 Week Low 51.50 Dividend Payout (%) 16.46  Stock Exchange BSE

moved into denim manufacturing in 1980's is currently one of the largest denim manufacturer

of the world. Arvind Mills limited, today is a force to reckon with in the entire chain of

Textile Industry. The Company’s line of business is:

o Fabrics: Denim, Shirtings, Khakis, Knitwear, Voiles

o Garment: Garment Exports, Arvind Brands

It is taking one step at a time for garment exports as it is increasing its garment-

manufacturing facility by 50% by debottlenecking. Interestingly, the company is also

developing another growth engine for itself i.e. the domestic branded apparel business, which

could be the company’s long-term valuation driver. Arvind Mills is one of the top Denim

manufacturers in the world and has a wide range of products with the adoption of state of art

technology.

The company with both international and local brands is one of the leading players in the

domestic ready to wear garment industry. The company has the rights to market international

brands such as Arrow, Lee, Wrangler, Tommy Hilfiger and Flying Machine etc in India. The

company has also owns popular brands such as Newport, Ruggers, Excalibre and Ruf & Tuf.

It has tied-up with H I Lee for Lee brand in denim Jeans and with Cluett International, US,

for Arrow Shirts for manufacturing and marketing in India. Denim Major Arvind Mills is

setting up a state-of-the-art design centre in New York, targeting the premium US customers.

Revenue Composition:

With more and more sales moving towards vertical

route, the sales of fabric to outside party have come

down. The company’s product offering has been

accepted as mid to premium product and have been able

to initiate business at large scale with few of the super

premium US brands during the year.

42

indian promoters34%

Foreign Institu-tional

In-vestors

25%

other institutional investors

16%

indian public19%

others6%

Share Holding Pattern

Fig No: 10

Shirts factory in Bangalore, which suffered in the last two quarters of the previous

financial year and the first half of the current financial year has stabilized. Knits

garmenting volume for the current year grew by 11% and business has achieved stability

in terms of quality and productivity. Improved internal efficiencies have also contributed

in better margins in spite drop in overall price levels.

.Recent Developments and Future Plans:

Arvind Mills has plans to set up a state-of-the-art design centre in New York, targeting

the premium US customers.

Arvind Mills is going to invest Rs 45 crore over a year to expand its retail network by

another 100 outlets

The company has plans to launch four overseas brands in the near future, which includes

Swedish lifestyle brand Gant, US brands Nautica and JanSport and Kipling from

Belgium.

The board has approved delisting of equity shares of the company from the Calcutta

Stock Exchange Association Ltd and Ahmedabad stock exchange.

The company has acquired the balance 53.4% equity in Arvind Brands for Rs.1,060 Mn

from ICICI venture, which made it into a fully owned subsidiary of the company.

Financial Analysis:

Table No: 11

Particulars Twelve Months Ended 4th Qtr Ended

 Mar-09 Mar-08 Mar-07 Mar-06

Mar-05

31.03.09

31.03.08

Net sales 15921,654.91

1,407.26

1,475.86 698.23 375.75 438.63

Growth (%) -3.80 17.60 -4.65 111.37   -14.34   EBITDA 421.46 444.37 388.47 443.19 168.99 92.36 115.93

43

Depreciation/Amortisation 155.1 149.07 150.31 148.14 74.04 39.36 38.18 EBIT (Operating Profit) 266.36 295.3 238.16 295.05 94.95 53.00 77.75 Margin (%) 16.73 17.84 16.92 19.99 13.60 14.11 17.73 Interests 129.98 116 136.86 165.72 74.69 33.00 30.75 PBT 136.38 129.3 101.3 129.33 20.26 20.00 47.00 Taxes 9.22 1.95 4.55 0 0 -1.47 -6.00 PAT 127.16 127.35 96.75 129.33 20.26 21.47 53.00 Margin (%) 7.99 7.70 6.88 8.76 2.90 5.71 12.08

The company witnessed a 60% decline in bottomline backed by 14.34% fall in topline in

the last quarter. The sales for the year were down by 4% at Rs.1592 Crore as against

Rs.1655 Crore in the last financial year.

Other income during the year has increased over 4 times at Rs 22 crore. There was 12%

and 4% increase in interest and depreciation costs at Rs 130 crore and Rs 155 crore

resulting in Profit before tax of Rs 136.38 crores up by 5.47%. After forex loss of Rs 9

crore, profit after tax stood flat Rs 127 crore

Ratio Analysis:

Table No: 12

RATIOS Mar-09 Mar-08 Mar-07 Mar-06 Mar-05Basic          EPS (Basic and Diluted) 5.88 6.31 4.52 6.97 1.45CEPS 19.69 22.64 19.65 25.20 12.07BV 66.78 65.57 60.47 60.56 64.72EV 3230.44 3457.24 2298.78 1764.71 1562.74Profitability          ROE (%) 9.09 9.94 8.19 12.15 2.24ROCE (%) 7.84 9.96 9.39 12.27 3.73Valuation          P/E 9.61 13.97 10.05 3.00 6.77P/BV 0.85 1.34 0.75 0.34 0.15P/CEPS 2.87 3.89      EV/Operating income 7.66 7.78 5.92 3.98 9.25EV/Sales 2.03 2.09 1.63 1.20 2.24

44

Leverage Ratio          Debt / Equity 2.43 2.31 2.15 2.26 2.81Other          Int. coverage 2.05 2.55 1.74 1.78 1.27Dividend Payout 16.46 15.34 0.00 0.00 0.00

Findings and Recommendations:

Arvind’s strong brand portfolio, presence across the retail pyramid and wide distribution

network in branded apparels — a proxy for playing the retail story in the domestic

market.

The company is expected to generate FCF of Rs1.1b in FY09 and Rs2.6b in FY10, which

it will largely use to reduce its gearing.

Looking at P/E which is at 9.61 is quite low as compared to other majors in the industry

and also EPS of the company is very low as compared to others in the industry.

The Company’s Debt/Equity ratio is quite high but is expected to reduce it near future.

The high debt was the part of development and company plans to minimize it with its

FCF.

Once the benefits of quota dismantling start filtering in, integrated players like Arvind

Mills shall stand to yield the maximum benefit, as smaller players will have very limited

scope in the global markets.

Looking at various fundamentals and also considering various ratios I would like to

recommend to buy the stock but investors will have to also keep in mind high risks

attached to it.

45

6.4 Bombay Dyeing & Manufacturing Co. Ltd.:

Market data: Business Profile:

Table No:13

The Bombay Dyeing & Manufacturing Co. Ltd is one of

India’s largest producer of textiles. Along the path of growth

and diversification, Bombay Dyeing has spawned dozens of

other companies.

In technical and financial collaboration with world leaders,

such companies have pioneered the manufacture of various

46

Current Market Price 595.3

Market Capitalisation ( (Rs in Crs)  2298.45 Free Float 56.98  52 Week High 988.9 52 Week Low 260 Dividend Yield % 1.00 Dividend Payout (%)  31.47 Stock Exchange BSE

chemicals and have grown to be leaders in their new fields. It was a legacy that was born in

1879, A legacy that would gave rise to one of India’s most respected business houses. Today,

it is one of the largest manufacturers in the composite sector of the Indian textile industry. In

1940, the Co. shipped its first batch of exports and, over the years, established a market in

US, UK, Europe, Gulf and Soviet Union.

  The Company’s line of business is:

Textile:

o Domestic – Wholesale, Industrial, Retail Distribution

o Exports – Grey, Long Length, Made –Up’s.

Di-Methyl Terephthalate (DMT)

Real Estate

Promoter43%

FII's14%

Other Instituional Investor17%

Indian Public20%

Others7%

Share Holding Pattern

Fig. No:11

Investment Arguments:

Forward integration into PSF:

The company is forward integrating by setting up a 165,000m ton PSF plant next to its

DMT plant at Patalganga at a cost of around Rs3.5b.

Plans to leverage the strong Bombay Dyeing brand:

In the retail space, Bombay Dyeing plans to invest close to Rs700m over the next few

years to set up its own Stores and refurbish its existing franchisees.

47

Strong free cash flow generator:

Bombay Dyeing will be able to generate cash flows of around Rs12.8bn by unlocking its

property by developing two town centres in these two plants over the next five years.

Comeback in the ready-made segment:

Bombay Dyeing reviving its age-old shirt brand, Vivaldi with the help of Proline, its joint

venture partner. , Vivaldi is positioned at the bottom end of the men`s ready-made shirts

market and also includes trousers and inner wear in a limited way.

Financial Results:

Table No: 14 (Rs. in crores)

Particulars Twelve Months Ended 4th Qtr Ended

 Mar-09

Mar-08

Mar-07

Mar-06

Mar-05

31.03.09

31.03.08

Net sales1013.01

1012.98 891.87 844.23 789.34 212.62 286.95

Growth (%) 0.00 13.58 5.64 6.95   -25.90  

EBITDA 93.73 67.50 122.95 88.85 33.77 -16.57 -7.33 Depreciation/ Amortization 16.90 19.38 34.43 37.23 48.33 3.92 3.40

EBIT (Operating Profit) 76.83 48.12 88.52 51.62 -14.56 -12.65 -4.33

Margin (%) 7.58 4.75 9.93 6.11 -1.84 -5.95 -1.51

Interests 17.61 14.44 15.96 18.09 36.12 2.31 1.17

PBT 59.22 33.68 72.56 33.53 -50.68 -10.34 -3.16

Taxes -2.12 7.12 19.06 1.22 -21.62 2.94 -0.28

PAT 61.34 26.56 53.50 32.31 -29.06 -7.40 -3.44

Margin (%) 6.06 2.62 6.00 3.83 -3.68 -3.48 -1.20

48

Bombay Dyeing & Mfg Company has disclosed that the loss for the quarter ending in

March, 2006 has widened. During the quarter, the company saw a 115.12% rise in loss

from Rs 3.44 Cr to Rs 7.4 Cr. Sales for the quarter declined 25.9% to Rs. 212.62 Cr as

compared to 268.95 Cr. in the corresponding quarter, a year ago.

Operating margins continued to remain negative and the Net margins, on the other hand,

fell from a negative 1.2% to 3.48% during the quarter. Earnings per share (EPS) for the

quarter were negative at Rs 1.92.

Ratio Analysis:

Table No:15

RATIOS Mar-09 Mar-08 Mar-07 Mar-06 Mar-05 Basic           EPS (Basic and Diluted) 15.89 6.89 13.89 8.29 -7.42 CEPS 24.83 15.65 26.97 22.47 14.14 BV 120.41 88.65 100.22 90.62 85.28 EV 2850.01 1665.30 926.39 548.25 449.50 Profitability           ROE (%) 13.20 7.77 13.86 9.14 -8.70 ROCE (%) 7.51 6.91 11.82 7.03 -2.32 Valuation           P/E 37.44 49.56 10.67 5.39 -5.74 P/BV 4.94 3.85 1.48 0.49 0.50 P/CEPS 23.96 21.80 5.49  1.99  3.01  EV/Operating income 30.41 24.67 7.53 6.17 13.31 EV/Sales 2.81 1.64 1.04 0.65 0.57 Leverage Ratio           Debt/Equity 2.20 2.04 1.94 2.08 1.88 Other           Int. coverage 4.36 3.33 5.55 2.85 -0.40

49

Dividend Payout 31.47 58.09 28.80 35.72 -26.94

Findings and Recommendations:

Bombay Dyeing is a strong play on the textiles, petrochemicals and real estate businesses

and Company has also made a come back in its retail business, which will further drive

the growth of the company.

The company has tremendous potential to leverage its strong brand equity and re-invent

itself through its ongoing restructuring exercise.

The company has a market capitalization of Rs23bn and an EV of Rs28.5bn. Its realizable

real estate value over the next 3-4 years alone is close to Rs12.8b, while it is likely to earn

Rs450mn per annum of recurring income from lease rentals FY10 onwards from 0.5mn

sq feet of retail property.

Looking at the P/E valuation, Company is heading well above the other majors in the

industry and also EPS is above the industry average. Company has maintained high

dividend payout ratio over the years which is again good thing to look out from the

investor’s point of view.

Company is having well high Debt/Equity ratio but it can be minimized with the huge

cash flow company will generate from its real estate business in the coming years, so

investors need not to worry about it.

Company is well good enough by looking at ratio valuations but the main crunch lies in

how company utilizes its huge cash flows and its major plan in recent future. So I would

like to recommend investors to wait and look how company benefits from all its

operation.

50

6.5 Gokaldas Exports Ltd.:

Market data: Business Profile:

Table No:16

Gokaldas Exports Ltd (GEL) was incorporated in 1979.

At that time the group expanded through partnership

firms. The prevailing regulatory environment, labour laws

and reservation for small-scale industries made it

conducive for growth through forming partnership firms.

The Company was converted into Private limited

company in order to expand further.

51

Current Market Price 573.05Market Capitalization(Rs. In Crores)

985.05

Free Float % 23.1052 Week High 80952 Week Low 452.15P/E 14.61EV 1109.81Dividend Yield %) 0.38Dividend Payout (%) 8.47Stock Exchange BSE

GEL at present, is a major player in the readymade garment industry across the globe.

It is one of the largest manufacturer/exporters. The company’s wide product range (for men,

women and children), design capabilities, focus on niche segments like outerwear and

expertise in managing multiple orders concurrently (it has 46 plants in and around Bangalore)

make it a preferred vendor to many fashion brands and retailers around the world. The

company is highly dependant on export growth, as exports account for 98% of sales

currently. The Hinduja Group in Bangalore controls the company (with promoters holding a

77% stake after its recent public offering).

 Gokaldas Exports Pvt Ltd and Unique Creations (Bangalore) Pvt Ltd was merged with the

company with effect from 1st April 2004. During March 2005 the company made a maiden

public offer and has raised Rs.17.18 Cr

77%

6%

7%4%

6%

Share Holding Pattern

Promoter FII's Other Instituition Investor

Indian Public Others

Fig. No:12

Key Positive:

‘Preferred vendor’ for some of the world’s largest and well known brands like Nike,

GAP, Old Navy, Tom Tailor and Lebek International.

Greater ability to manage a huge workforce, complex sourcing, production planning, and

ensuring timely deliveries to customers and offer a diversified product range.

Global sourcing capabilities and integrated facilities, which allows it to reduce its input

cost and enhance its competitiveness.

52

Specialization in outerwear enables it to earn higher margins with almost 65% of its

revenue coming from this segment.

High non-quota country sales.

Recent Developments and Future Plans:

The company will invest Rs 100 crore to set up a unit in the 400-acre special economic

zone (SEZ) near Bangalore. The SEZ unit will have 2,500 employees and will produce

1.5 million pieces a year The SEZ will be set up by group firm, Gokaldas Exports

Apparel and Textile Park.

The company will be investing Rs 70 crore to set up four new manufacturing units over

12 to 18 months. The new facilities will come up in Mysore, Hyderabad, Chennai and

another one near Bangalore.  

The company plans to upgrade machinery at its existing units. It will invest about Rs 20

crore for installing material handling systems, conveyors and productivity-enhancing

equipment.

A large laundry unit around Bangalore had commissioned in December last year to meet

its capacities and to come up as complete integrated player.

Financial Results:

Table No:17 (Rs. In Crores)

Particulars Twelve Months Ended 4th Qtr Ended

  Mar-09 Mar-08 Mar-07 Mar-06 Mar-05 Mar-09 Mar-08

Net sales 884.49 719.79 39.11 370.7 362.37 239.12 219.30

Growth (%) 22.88 1740.42 -89.45 2.30   9.04  

EBITDA 100.3 67.06 4.1 39.33 45.66 29.32 25.61

Depreciation/ 18.07 11.57 0.52 3.23 2.79 5.44 4.99

53

AmortisationEBIT (Operating Profit)

82.23 55.49 3.58 110.87 81.6223.88 20.62

Margin (%) 9.30 7.71 9.15 29.91 22.52 9.99 9.40

Interests 14.29 11.8 0.56 3.94 5.45 3.47 3.69

PBT 67.94 43.69 3.02 32.16 37.42 20.41 16.57

Taxes 7.06 4.11 0.08 0 0 5.38 0.85

PAT 60.88 39.58 2.94 32.16 37.42 15.04 15.72

Margin (%) 6.88 5.50 7.52 8.68 10.33 6.29 7.17

GOKALDAS EXPORTS LTD. (GEL) had closed the financial year 2005-06 with an

impressive set of numbers. Its consolidated revenue was Rs 884.49 Cr., up 22.8 % over

the previous year.

The company’s net profit rose from Rs 39.58 Cr to Rs 60.88 Cr. showing an increase of

53.8 %. Sales of the fourth quarter ended March 31,2006 stood at Rs 2,300 million, the

corresponding net profit being Rs 150.3 million.

Over 80 percent of the revenues were generated from the export of outerwear and bottoms

and both these items have remained the key components to revenue generation for the

company. Outerwear includes both sportswear and winter wear and bottoms include

casual pants, chinois, linen trousers, denim jeans, etc.

There is a jump of 120% in the Capex this year. The Capex for FY 06 is Rs.86 Crores

whereas the Capex for FY 08 was Rs. 39 Crores. The depreciation also has been higher to

the tune of 56%. The depreciation for FY 09 is Rs. 18.07 Crores and the same for last

year was Rs. 11.57 Crores. As a consequence of this high Capex, deferred tax liability has

also increased.

Ratio Analysis:

Table No:18

RATIOS Mar-09  Mar-08  Mar-07  Mar-06  Mar-05  Basic          

54

EPS 35.42 28.14 2.94 5.60 7.22 CEPS 54.25 44.76 4.02 6.85 8.81 BV 204.46 118.24 12.94 10.00 10.25 Profitability           ROE (%) 17.33 23.80 22.72 56.01 70.42 ROCE (%) 13.68 15.55 2.61 41.70 73.31 Leverage Ratio           Debt/Equity 1.71 2.15 10.59 1.51 1.10 Other           Interest Coverage 5.75 4.70 6.39 9.16 7.87 Dividend Payout 8.47 7.10 ---- ---- ----

Findings and Recommendations:

Gokaldas Exports is the largest garment exporter in India and should definitely benefit

once the dismantling of quotas effect starts increasing outsourcing trend.

In my opinion P/E captures the strong earnings growth potential and hence is primary

valuation tool. The stock is trading at a P/E of 14.61 in FY09 earnings which is near to on

an average of the industry. Premium multiple is a function of Gokaldas rapid earnings

growth of 41% CAGR, on par with the growth leaders in our textile industry.

Company has a very well EPS and ROE as compared to other majors in the industry

which implies that company is using its resources very well and it’s a good sign to

investors to look in.

With global reforms seeming to favor India since the removal of quotas and with anti-

surge measures on China, we expect company’s growth to continue.

Looking at the various ratios and expected growth of company due to dismantling of

Quota restrictions, company is expected to have a better future and I would like to

recommend BUY on this stock.

55

6.6 Indo Rama Synthetics (India) Ltd:

Market data: Business Profile:

Table No:19

Promoted by Mr. O P Lohia, Indo Rama Synthetics

(India) Limited started its operations in 1989 and since then

has grown to be India's largest dedicated polyester

manufacturer. IRSL has a state of the art manufacturing

facility at Butibori in Nagpur with a consolidated

manufacturing capacity of 300,000 tonnes per annum (TPA)

of Polyester Fibres and Yarns in technical collaboration with Toyobo, Japan and DuPont,

USA, respectively. The product profile comprise of:

Polyester Staple Fibre (PSF), Partially Oriented Yarn (POY), Fully Drawn Yarn (FDY).

Purified Terepthalic Acid (PTA) & Mono Ethylene Glycol (MEG), both primarily crude

derivatives are the key raw materials for the manufacture of polyester.

Indo Rama Synthetics Ltd (IRSL) is the second largest polyester manufacturer and exporter

with a total of 30% share in of India's exports of polyster.

56

Current Market Price 49.8 Market Capitalisation (Rs in Crs)  656.51Free Float 42.47 52 Week High 99.852 Week Low 44.0Dividend Yield % 6.67Dividend Payout% 76.31 Stock Exchange BSE

Promoters

58%FII's1%Other Institutions

11%

Indian Public9%

Others21%

Share Holding Pattern

Fig No: 13

Sales Break-Up:

As can be seen from the pie charts that company is Shifting focus on value added

products.

Sales for the year FY06 were more-or-less maintained at the previous year level given the

fact that the sales of PSF were down by 2% mainly due to stiff competition from Cotton.

The share of Yarn in the total sales has increased from 14% to 19% in 2009.

Sales for POY were lower mainly due to sudden increase of new players in the industry.

Due to sudden increase in the players, the industry dynamics were distorted to some

extend and impacted IRSL’s sales. Prices of finished goods were tempered by the entry of

smaller players and consequent excess supply mainly in the POY segment as well as

lower prices of the competing cotton fibre.

Financial Results:

Table No:20 (Rs. In crores)

Particulars Twelve Months Ended 4th Qtr Ended  Mar-09 Mar-08 Mar-07 Mar-06 Mar-05 31.03.09 31.03.08 Net sales 1,870.90 1,874.791,663.94 1,711.69 1,445.53 516.59 538.72 Growth (%) -0.21 12.67 -2.79 18.41 -4.11 EBITDA 194.72 243.15 395.98 377.37 293.42 36.62 42.29 Depreciation/amortisation

98.06 97.78 96.46 94.64 104.53 24.25 23.68

EBIT (Operating Profit)

96.66 145.37 299.52 282.73 188.89 12.37 16.61

Margin (%) 5.17 7.75 9.55 6.48 5.65 2.39 3.08

57

Interests 29.49 38.88 46.93 68.95 122.1 5.60 7.75 PBT 67.17 106.49 252.59 213.78 66.79 6.77 10.86 Taxes 15.34 36.28 80.87 88.96 25.51 3.27 -5.25 PAT 51.83 70.21 171.72 124.82 41.28 3.50 16.11 Margin (%) 2.77 3.74 10.32 7.29 2.86 0.68 2.99

Indo Rama Synthetics India Ltd has posted 78.27% decrease in profit after tax to Rs 3.5

Cr. for the quarter ended March 31, 2009 as compared to Rs 16.11 Cr. for the quarter

ended March 31, 2008. Total Income has decreased by 5.18% to Rs 516.59 Cr. for the Q4

FY 08-09 from Rs 538.72 Cr. in Q4 FY 07-08.

The company has posted 26.17% decrease in profit after tax to Rs 518.30 million for the

year ended March 31, 2009 as compared to Rs 702.10 million for the year ended March

31, 2008. Total Income has marginally increased to Rs 19044.20 million in FY 07 - 08 to

Rs 19336.70 million for the year ended FY 08 - 09.

Over the years, Net sales of the company are increasing marginally but there is declining

trend in Operating Profit margin and Profit after tax margins.

Ratio Analysis:

Table No:21

RATIOS  Mar-09 Mar-08  Mar-07  Mar-06  Mar-05  Basic           EPS 3.93 5.33 13.03 9.39 2.48 CEPS 13.61 15.69 23.91 21.69 16.12 BV 50.63 51.22 51.48 43.92 40.07 EV 1207.29 1417.76 1725.25 1349.81 1224.49 Profitability           ROE (%) 7.76 10.40 25.30 21.37 6.20 ROCE (%) 7.87 11.61 20.41 17.94 10.68 Valuation           P/E 12.67 12.27 5.50 2.92 3.40 P/BV 0.98 1.28 1.39 0.62 0.21 P/CEPS 3.66 4.16 3.00 1.26 0.52 EV/Operating income 12.49 9.75 5.76 4.77 6.48 EV/Sales 0.65 0.76 1.04 0.79 0.85 Leverage Ratio          

58

Debt / equity 1.84 1.85 2.16 2.70 2.65 Other           Int. coverage 3.28 3.74 6.38 4.10 1.55 Dividend Payout 76.31 75.10 30.71 23.98 40.29

Findings and Recommendations:

Looking at the Budget announcement of reducing the excise duties on finished goods to

8%, it is expected to enhance the competitive position of polyester versus competing

fibers and would result in increased demand and sales realizations.

The company’s ROE has been declining over the years which are not a good sign from

investors’ point of view. It’s due to higher input costs which lead to lower margins in the

business but the company is positive on it and expects to improve it further.

Looking at the primary valuation the company is having P/E of 12.67 in 2009 which is at

the average of the industry but it has a very low EPS compared to the others in the

industry due to higher input costs.

The Company is expected to perform better by looking at the expansion plans of doubling

the existing capacities and as also expansions are expected to be complete next year, the

debt of the company will be reduced thereafter.

Based on the assumptions of feedstock prices and capacity utilization rate due to doubling

of capacity, it is recommended to the investors that company can be seen from a long

term point of view and investors can BUY shares for long term and those already having

shares can hold it and expects better returns.

59

6.7 Mahavir Spinning Mills Ltd:

Market data: Business Profile:

Table No:22

Incorporated in October’ 1973, Mahavir Spinning Mills

(MSML) was promoted by Vardhaman Spinning and

General Mills and is managed by Chairman Paul Oswal.

Incorporated in Oct.'73, Mahavir Spinning Mills (MSML)

was promoted by Vardhaman Spinning and General Mills

and is managed by Chairman Paul Oswal.

Mahavir Spinning Mills, part of the Vardhman Group, has its operations divided into four

major segments which are as follows:

Yarn: The yarn segment has a total capacity of over half a million spindles. It also has 27

tons of dyeing capacity in two units. The company has 15 units of which 4 units are

dedicated to exports only

Sewing thread: The sewing thread segment produces sewing and industrial sewing

threads.

60

Current Market Price 283.15 Market Capitalisation (Rs in Crs)  1635.76 Free Float  37.77 52 Week High 420 52 Week Low 250.15 Dividend Yield % 1.55 Dividend Payout  11.97 Stock Exchange BSE

Steel: Company produces steel ingots, steel billets and rolled products for the automobile

sector, forging and special steel for the capital goods industry.

Fibre: Engaged in producing about 22 tons of acrylic fibre and acrylic tow

The company’s acquisition of Vardhman’s textile business has vertically integrated its

business model. With large capacities in yarn and vertical integration to fabric, Mahavir is an

integrated player in the textile industry. Superior quality and a wide product range in higher

value-added products make it a preferred supplier to domestic and international

manufacturers in textiles and apparels. Direct exports contribute 23% of revenues.

The company caters to its international customers through an EOU, VMT

Spinning Company, a joint venture between Marubeni Corporation and Toho Rayon

Company Limited of Japan. The company has an installed capacity of 28320 spindles unit

and specializes in producing fine counts.

The company's subsidiaries are VMT Spinning Company Limited(VMT), Vardhman Threads

Limited(VTL) and Vardhman Yarns & Threads Ltd. Future growth should be driven by

initiatives to vertically integrate to fabric, a focus on value added products and aggressive

expansion of capacities.

Promoter62%

FII's6%Other Instituitional Investors

13%

Indian Public13%

Others6%

Share Holding Pattern

Fig. No: 14

Segment Revenue:

The total revenue collected last year was Rs.2056.54 Cr. as compared to Rs.2169.22

Cr. this year showing an increase of 5%.

61

Yarn manufacturing is the main line of business and has the largest stake in the

turnover and profitability of the company. With strong improvement in margins, the

segment PBIT almost doubled at Rs 47.94 crore as against 24.09 crore in the

corresponding previous quarter. This segment showed an increase of 49% in PBT

over the last year.

All the segments recorded an increase over last year except the steel segment, which

showed a decrease of 4% in revenue while 25% in Profit before tax.

Key Positives:

Mahavir plans to invest Rs12bn over FY08-09 to large-scale expansion capacities,

which will drive the growth and place the company to new heights. Eighty percent of

this will be funded by debt leveraging on low cost funds under TUF and internal

accruals.

Mahavir has lined up an expansion in fabric after acquisition of Vardhman’s textile

business, after which it offers integrated fabric capacities of 85m meters.

With the growth outlook for textiles improving, there is an increasing demand for

superior quality yarn. Mahavir has differentiated itself by focusing on specialized

yarns like compact, lycra, dyed, gassed mercerized, hand knitting and blended yarns.

This value addition is expected to drive the growth of the company.

Company is the second-largest sewing thread manufacturer in India after Coats. With

the increase in India’s apparel exports and the fiscal changes made by the government

have created a level playing field and the company will be able to leverage its strong

position in the sewing thread business.

Softening steel prices adversely impacts the decline in price realizations of the steel

alloy business and also the operating profitability of that business.

62

Higher than a 2-3% fall in yarn price realizations due to commodity nature of business

would impact the profitability of the yarn business by 2-3%

Recent Developments and Expansion Plans:

The company enters into a subscription agreement with Deutsche Bank AG, Hong Kong

Branch for an issue of foreign currency convertible bonds of US$ 60 million with

maturity of 5 years and 1 day. The FCCBs are to be listed on the Singapore Exchange.

Mahavir Spinning Mills Ltd`s board of directors have approved an Expansion-cum-

Modernization Plan of the company entailing an expenditure exceeding Rs 1600 crore.

The company also plans to double its capacities in fabric processing with appropriate

capital investments in spinning and weaving by setting up of additional facilities in

Madhya Pradesh. The proposed expansions will entail a capital expenditure of Rs 1075

crore approx. The implementation of these projects will be in phases and is expected to

extend up to 2008-09.

The company has planned to expand all its existing capacities as below:

o Yarn - Spindles to expand from its existing 468,688 units to 603,688 units by

Dec’09

o Fabric (m meters) from 30.0 to 85 Dec'09

Financial Results:

Table No:23 (Rs. In Crore)

Particulars Twelve Months Ended 4th Qtr Ended

 Mar-09 Mar-08 Mar-07

Mar-06

Mar-05

31.03.09

31.03.08

Net sales1889.16

1,850.86

1,076.46

841.79 727.82 494.76 476.07

Growth (%) 2.07 71.94 27.88 15.66 3.93 EBITDA 391.41 315.67 179.32 148.24 121.42 95.45 86.61 Depreciation/Amortization

101.34 97.01 56.78 51.17 43.28 24.44 22.38

EBIT (Operating Profit)

290.07 218.66 122.54 97.07 78.14 71.01 64.23

63

Margin (%) 15.35 11.81 11.38 11.53 10.74 14.35 13.49 Interests 39.49 59.09 40.24 38.82 41.65 9.33 11.62 PBT 250.58 159.57 82.3 58.25 36.49 88.84 52.67 Taxes 54.27 38.81 22.14 15.73 11.08 12.68 5.41

PAT 196.32 120.76 60.16 42.52 25.41 76.16 47.20

Margin (%) 10.39 6.52 5.59 5.05 3.49 15.39 9.91

Mahavir Spinning Mills has reported a phenomenal jump in net profits for the quarter

ending in March 2006. During the quarter, the company experienced a 61.36% rise in

profits from Rs. 47.2 Cr to Rs. 76.16 Cr. Sales for the quarter rose 3.93% to Rs. 4,947.6

million compared with the corresponding quarter, a year ago.

For the full year ended March 2006, Revenues increased by a marginal 2% to Rs 1889.16

crore. OPM jumped to 15.35% resulting in 32.65% increase in operating profits at Rs

290.07 crore. Raw material cost as a % to net sales (net of stock adjustment) decreased

from 48% to 42% while Staff cost and other expenditure increased from 5% and 31% to

6% and 34% respectively.

The company’s sales had increased over the years except over the last year but it can be

seen that though the sales are nearly same but Operating profit margin and PAT margin

had increased substantially increased over last year. Also company is trying to improve its

margins over the years.

Ratio Analysis:

Table No:24

RATIOS Mar-09 Mar-08  Mar-07  Mar-06  Mar-05  Basic           EPS 33.98 31.36 23.36 16.51 9.87 BV 166.47 207.82 194.38 176.10 163.90 EV 2371.02 1430.61 851.46 598.80 468.80 Profitability           ROE (%) 20.41 15.09 12.02 9.38 6.02 ROCE (%) 15.91 14.11 15.62 12.04 9.97 Valuation           P/E 7.83 5.83 5.85 3.53 3.65 P/BV 1.60 0.88 0.70 0.33 0.22

64

EV/Operating Income 8.17 6.54 5.36 5.40 5.74 EV/Sales 1.255 0.773 0.791 0.711 0.644 Leverage           Debt/Equity 1.90 1.94 2.03 2.03 1.94 Other           Int. coverage 7.35 3.70 3.95 2.86 1.96 Dividend Payout 11.97 14.35 19.27 25.42 42.54

Findings and Recommendations:

The premium is a function of the company’s efforts to move away from the commodity

business of yarn and its vertical integration into fabric but it also recognizes that earnings

CAGR of 15% is below that for other top picks in the sector.

As company being one of the largest players in cotton yarn, lower cotton prices and a

sharp drop in the interest cost have resulted in profits.

Looking at our primary valuation technique, Company has a very low P/E as compared to

other majors in the industry. But looking at EPS and ROE of the company, its well above

the industry average and also above most of the majors in the industry.

By looking at the above ratios it can be said that market has not given the proper

valuation to the stock because though it has good EPS and |ROE but then also its market

price is low.

On a FY09 EV/Operating income of 8.17, the stock is trading at 21% discount to the

sector average. The company has low EV/Operating margin ratio but given the

company’s initiatives to improve its product mix to achieve superior margins, an

EV/Operating margin will improve a lot.

With future expansion largely driven by fabric and new capacities going on-stream in

phases, the stock to trade at premium to the industry as the growth theme plays out.

Looking at ratios of the company, further looking at its expansion plans and also looking

at the figures generated, its not quite clear about the company’s future stock performance

65

and so I would like to be NEUTRAL on this stock and would advice investors to have

patience and look at company’s performance in future and then make a judgment.

6.8 Raymond Ltd:

Market data: Business Profile:

Table No: 25

Raymond (formerly Raymond Woolen Mills) is the

flagship of the Vijaypat Singhania Group was incorporated

in 1925.The Raymond Group is a Rs. 1400 crore plus

conglomerate having businesses in Textiles, Readymade

Garments, Engineering Files & Tools, Prophylactics and

Toiletries. The company has a 60% share in the worsted

textile industry, this segment contributes approximately 50% to the company’s turnover.

Raymond manufactures denim and jeans in India in collaboration with Calitri Denim

Industries of Italy, largely for exports. Raymond is present in three segments of the ready to

wear range, with a brand in each. The company introduced Park Avenue; the business wear

range of ready-mades in 1986 and today it is one of largest selling brand of men’s wear. The

Parx range of casual wear was targeted at the mid-segment customer. This segment is there to

bring in the volumes. In the high-end premium segment the company introduced the

aggressively priced Manzoni range. To manufacture cosmetics and toiletries, Raymond

established Helen Curtis in 1964 in technical collaboration with Helene Curtis Inc of USA

With a capacity of 25 million meters of wool & wool-blended fabrics, Raymond Textiles is

the world's third largest integrated manufacturer. The company exports it’s suiting to more

66

Current Market Price 358.50 Market Capitalisation (Rs in Crs)  2202.3Free Float 65.03 52 Week High 625.052 Week Low 289.10Dividend Yield % 1.39Dividend Payout 25.10 Stock Exchange BSE

than 50 countries including USA, Canada, Europe, Japan and the Middle East. The company

has a distribution network of 260 showrooms across 110 cities, of which around 20 are

company owned and the rest are franchises.

Over the years, Raymond Textile has developed strong in-house skills for research &

development, which has resulted in path-breaking new products. Perceived as pioneer and

innovator, Raymond Textile has been responsible for raising the standard of the Indian

textiles industry. 

Promoter35%

FII's32%

Other Institutional Investors8%

Indian Public20%

Others5%

Share Holding Pattern

Fig. No:15

Revenue Composition:

The company generates the large revenue from textile and related sectors and Engineering

segment comprise only 10-12%. Net Revenue was Rs.1324.74 Cr with a YOY growth of

16%.

As it seems the percentage of textile segment has reduced in the revenue composition but

the revenue of textile division stood at Rs.868.44 Cr. With an increase of 13% in revenue

from textile division.

Sales of the textile division contributed 67% to the overall sales and major part of the

profitability of the company. With 54% of allocable capital employed for the year, textile

division's contribution in the PBIDT figure is 82%. The profitability of this division

increased by 32% to Rs 56.76 crore.

67

The growth in the revenue of Denim Division increased by 32%, Engineering by 9% and

Brands by 11%.

Recent Developments and Future Plans:

Raymond has entered into definitive agreements with UCO N.V., Belgium for combining

the denim business of the company and UCO N.V., and its subsidiaries in a proposed

50:50 joint venture company to be located in India.

Raymond has plans to expand its capacity for worsted suiting at Vapi in Gujarat by 3

million meters per annum making the company’s total capacity for worsted suiting of 31

million meters per annum. This would be an integrated facility starting from spinning up

to finishing of fabric. The total cost of expansion is estimated at Rs 197 crore.

Raymond has announced the setting up of a Design Studio in Italy by setting JV with

Gruppo Zambaiti. It will provide the Company with strategic, cutting edge design

capabilities for all its textile and apparel businesses. The design studio will provide access

to international design talent; provide visibility to its products globally.

Financial Results:

Table No: 26 (Rs in Crores)

Particulars Twelve Months Ended 4th Qtr Ended

  Mar-09 Mar-08 Mar-07 Mar-06 Mar-05 31.03.09 31.03.08

Net sales1,340.45

1,158.76

1,089.98

1,011.52 972.15 384.25 322.95

Growth (%) 15.68 6.31 7.76 4.05   18.98  

EBITDA 271.36 184.18 272.8 229.46 218.45 69.09 60.07Depreciation/ Amortization 72.71 63.77 63.38 58.11 52.61 19.30 19.95

EBIT (Operating Profit) 198.65 120.41 209.42 171.35 165.84 49.79 40.12

Margin (%) 14.82 10.39 19.21 16.94 17.06 12.96 12.42

Interests 35.28 28.83 23.09 38.72 55.41 5.37 2.07

PBT 163.37 91.58 186.33 132.63 110.43 44.42 38.05

Taxes 41.08 14.76 54.49 41.2 26.79 9.61 -6.38

PAT 122.29 76.82 131.84 91.43 83.64 34.81 44.43

Margin (%) 9.12 6.63 12.10 9.04 8.60 9.06 11.78

68

For the quarter ended March 2009, the company reported a 19% increase in sales.

However the OPM decreased to 13%. Bottomline for the quarter declined by 22% mainly

due to fall in OPM, increase in interest and tax provision. However the yearly

performance remained robust. The main drivers for the growth were Textile and Denim

segment.

The company has shown the good figures for the year ending 2009. The company has

shown nearly 16% growth in the topline where as nearly 60% growth in bottomline. The

operating margins saw an increase from 10.3% to 15%, which resulted in 65% jump in

the operating profits at Rs 198.65 crore

As can be seen the performance of the company over the years there has been increase in

the sales of the company substantially but the Operating profit margins and Net profit

margin has been fluctuating due to fluctuating raw material prices, taxes and wages.

Ratio Analysis:

Table No: 27

RATIOS Mar-09 Mar-08 Mar-07 Mar-06 Mar-05 Basic           EPS 19.92 12.52 21.48 14.90 13.63 CEPS 37.52 27.60 35.57 30.67 31.22 BV 193.86 179.85 170.83 155.48 145.85 EV 2860.15 2543.33 1553.35 1016.12 1085.00 Profitability ROE (%) 10.28 6.96 12.57 9.58 9.34 ROCE (%) 10.15 7.18 13.73 11.93 11.63 Valuation P/E 17.31 25.82 8.37 6.01 7.03 P/BV 10.92 11.03 6.46 3.54 4.03 P/CEPS 9.19 11.71 5.06 2.92 3.07 EV/Operating income

14.40 13.81 5.69 4.43 4.97

EV/Sales 2.13 2.19 1.43 1.00 1.12 Leverage

69

Debt/Equity 1.65 1.52 1.45 1.50 1.59 Other Int. coverage 5.63 4.18 9.07 4.43 2.99 Dividend Payout 25.10 31.96 25.61 30.21 33.02

Findings and Recommendations:

Company is expanding its fleet across different categories. Company entered into the

branded kids wear market by launching Zapp, targeted 4-12 years age group that at

present clocks 25 percent growth rate. Except this, Indian textile industry is in one of the

most buoyant periods.

With its premium brand positioning allowing some pricing power and the expectation of

rapid earnings growth, it is expected for the stock to trade at a premium to the industry.

Looking at the various ratios, it is seen that all the ratios are on or above the industry

average. P/E of the company currently trades at 17.31 where as company also have good

P/BV of 10.92 which gives a good signs. Company has a Debt/Equity ratio of 1.65 which

is less as compared to others in the industry and its part of development plans.

Looking at the stocks performance for the year, it can be seen that stock is performing

over the market that means that returns of the stock are above the market.

The capacity additions in textile and denim business completed in FY09 and the

partnerships forged with leading international players will contribute significantly to the

Company’s business in the coming years.

From the analysis of various ratios and looking at the fundamentals of the company and

industry it can be recommended to BUY the shares as company is well doing.

70

6.9 S.Kumars Nationwide Ltd.:

Market data: Business Profile:

Table No: 28

S.Kumars is a 4-decade-old business group operating

in the textile segment promoted by Mr.Shambhukumar

Kasliwal. SKNL was formed in 1990 when the group

consolidated all its business holdings under one entity. In

Oct.’93, it came out with a public issue to part-finance the

setting up of the latest shuttle less weaving equipment and

yarn texturising/twisting units at Dewas. The Company’s

name has been changed to S. Kumar’s Nationwide Limited to signify the company’s focus on

marketing, distribution and brand building of their various textile end products. It was

initially only known as a consumer textiles company, but over the years it has widened its

product portfolio. The company holds the distinction of being the only integrated textiles

player in India to have a presence across all fibre categories and across all price points. The

line of business of the company is:

Consumer Textiles – S.Kumars (Economy)

71

Current Market Price 59.45

Market Capitalisation (Rs in Crs)  967.31 Free Float% 47.33  52 Week High 71.95 52 Week Low 34.55 Dividend Yield % 0.00 Dividend Payout  0.00 Stock Exchange BSE

Home Textiles (1996)

Worsted Fabric (1999) – Reid & Taylor (Premium)

Ready-to-wear (2001) – Tamariind (Mid price), Reid & Taylor (Premium)

Due to this diversification, SKNL is the only Indian company, to have a presence across all

fibre categories - wool, polyester blends and cotton. The company has recently formed 4

Special Business Units (SBUs), corresponding to the 4 segments so as to enable independent

functioning and decision-making at the unit level.

S. Kumar’s has tied up with the Reid & Taylor (International) Limited, Scotland to produce

& market premium suiting in India. The brand has proved out to be a great success for the

company.

Foreign Holdings18%

Institutions3%

Company14%Promoters

53%

Indian Public11%

Share Holding Pattern

Fig No:16

Key concerns:

Focus on value addition in consumer textiles:

Keen competition and stagnating volumes in the uniform business have forced S Kumars to

focus on value addition. It is increasing presence in top-dyed fabrics that provide higher

realizations and margins.

Creating presence across the branded apparel business:

S Kumars plans to leverage off its brands to take advantage of growth in branded apparels.

Having already established its presence in the premium segment through Reid & Taylor,

72

middle-class segment with Tamarind, and in the economy segment with S Kumars and World

Player, it is looking to tie up with other brands in a bid to extend its presence across the

branded garment business

Strong distribution network an asset:

S Kumars has a wide distribution network of 300 wholesale dealers and 30,000 retail outlets

for the S Kumars brand, and 16 exclusive outlets and 8,000 retail outlets for the Reid &

Taylor brand.

Export opportunity in the post Multi Fibre Agreement (MFA) era:

Increasing exports is the clear focus in the post MFA era with exports to reach 32% of sales

by FY10, which was just about 4% of sales in FY05. Home textiles, Worsted Suitings and

HVFC Shirtings are expected to be the future export drivers for the company

Recent development &Future Plans:

S.Kumars Nationwide Ltd plans to invest around Rs 400 crore over the next four years for

expansion cum diversification. Broadly, the expenditure will be for the following projects:

o Expansion of Reid & Taylor Mfg. Capacity - Rs 90 crore

o Ready-to-wear garments (Total Wardrobe Solutions) - Rs 50 crore

o Home Textiles - Rs 80 crore

o High Value Fine Cotton Shirting - Rs 130 crore

o Working Capital Margin - Rs 50 crore .

Financial Results:

Table No: 29

Particulars Twelve Months Ended 4th Qtr Ended

 Mar-09

Mar-08

Mar-07

Mar-06

Mar-05

31.03.09

31.03.08

Net sales 889.73 344.53 615.16 620.85 807.05 247.89 196.20Growth (%) 158.24 -43.99 -0.92 -23.07 225.57 26.35  EBITDA 198.63 32.89 40.04 39.24 66.22 51.23 23.41Depreciation/ 40.92 20.89 58.6 58.79 48.88 10.22 6.24

73

AmortizationEBIT (Operating Profit) 157.71 12 -18.56 -19.55 17.34 41.01 17.17Margin (%) 17.73 3.48 -3.02 -3.15 2.15 16.54 8.75Interests 47.44 2.85 2.59 115.86 135.49 12.82 1.26PBT 110.27 9.15 -21.15 -135.41 -118.15 25.35 14.97Taxes 10.49 0 -2 -0.04 -10.74 2.59 0.00PAT 99.78 9.15 -19.15 -135.37 -107.41 22.76 14.97Margin (%) 11.21 2.66 -3.11 -21.80 -13.31 9.81 7.62

The company has came out with the outstanding figures for the year ended Mar-06.

Company has shown a topline growth of 158.24% and bottomline growth of nearly

1000% over the previous year. The company has also increased the Operating profit

margin and Net profit margin tremendously.

As can be seen from financials over the year, The Company’s OPM and net profit margin

were very low and negative for some years but company has increased it this year and a

strong growth is expected from the expansions to be completed. Reason for the low

performance previously can be thought of as high interest payments and depreciation.

Ratio Analysis:

Table No: 30

RATIOS Mar 09  Mar 08  Mar 07  Mar 06  Mar 05  Basic           EPS 6.33 0.58 -1.21 -8.58 -6.81 CEPS 11.56 2.09 13.92 10.76 8.96 BV 8.35 -0.98 15.21 16.62 25.37 EV 2056.32 1507.50 1227.45 1204.26 1028.48 Profitability           ROE (%) 75.73 -59.07 -7.98 -51.66 -26.84 ROCE (%) 13.13 1.05 11.73 8.02 6.11 Valuation           P/E 9.40 35.68 -5.77 -0.53 -0.69 P/BV 7.12 -21.08 0.46 0.27 0.19 P/CEPS 5.14 9.93 2.63  1.82  0.96  EV/Operating income 10.35 45.83 30.66 30.69 15.53 EV/Sales 2.31 4.38 2.00 1.94 1.27 Leverage Ratio           Debt/ Equity 9.12 -73.86 5.65 5.28 3.34

74

Other           Int. coverage 3.32 4.21 61.38 0.96 0.60

Findings and Recommendations:

S Kumars Nationwide is one of the turnaround stories in the Textile space with strong

brand and diversified product portfolio. The company is well poised to leverage the

opportunity in the Textile Sector both in the domestic space and also the exports markets.

Successful implementation of its growth strategy with focus on 'Home Textiles' & 'Total

Wardrobe Solutions' would drive the future profitability in coming years, which will in

turn trigger a re-rating in the stock valuation.

I believe P/E is not a suitable valuation tool to value this company because the company

has just turned around so instead we can keep EV/Sales in view of its recent thrust on

retailing and branding. Retailers in general have been trading between 2.0 and 2.5

EV/Sales. The stock may have more than discounted the turnaround and prospect of

strong growth with valuations at 2.3 EV/Sales for FY09.

Company has a very high Debt/Equity ratio which started from 90’s as company financed

most of its expansion plans through borrowings and it rose year by year and also

company was in burden of paying high interest. Finally debt restructuring plan has been

sanctioned now and company will reduce its burden soon.

Though company has high debt repaying program and also expansion plans which are

likely to generate huge cashflows in the future but looking at the risk attach it is

75

recommended to investors to SELL the shares right now and wait for a while to see how

company carries out its various operations in future and make decision depending on it.

6.10 Welspun India Ltd:

Market data: Business Profile:

Table No: 31

Welspun India, the flagship company of Welspun

group was incorporated in the year 1985. Welspun India is

one of India’s largest home textile companies,the largest

producer of Terry Towel in Asia and the fifth largest terry

towel player in the world The company is well positioned to

exploit the huge opportunitie in the home textiles arena

in the post quota scenario, as global manufacturing capacities in the developed world are

closing down. Welspun has timed its capex extremely well and has a wide product mix and

global capacities. It is highly regarded by global buyers for its product development and

innovation skills. The Company transferred the Spinning division with its assets and

liabilities to Welspun Cotton Yarn Ltd. WIL continues to manufacture terry towels, but the

yarn spinning is carried out by the new company - Welspun Cotton Yarn Ltd (WCYL).The

company has started direct marketing by way of 100% subsidiary in USA and has made

grounds for tie-ups with the best in the market for floating the products in the market.

76

Current Market Price 70.35Market Capitalization (Rs in Crs)

1107.79

Free Float 65.9952 Week High 145.0052 Week Low 62.60Dividend Yield % 0.00Dividend Payout 0.00Stock Exchange BSE

Promoters34%

Foreign Holdings19%

Institutions41%

Company2% Public

4%

Share Holding Pattern

Fig. No: 17

Recent Development and Future Plans:

Welspun group has acquired an 85% interest in Christy (CHT Holdings Ltd), U.K’s

Number One Towel Brand for Rs. 136.2 Cr, which will provide the company to have

access to UK and European Market.

After completing the first phase of investment of Rs 600 crore in December in bed liner

products, now the company will soon start the second phase of investment estimated at Rs

650 crore in the Kutch unit of gujrat.

Board of directors have decided in-principle to transfer its entire retail business in India to

a subsidiary company, looking at the potential market in India

Financial Results:

Table No: 32 ( Rs. In Crores)

Particulars Twelve Months Ended 4th Qtr Ended  Mar-09 Mar-08 Mar-07 Mar-06 Mar-05 31.03.09 31.03.08 Net sales 633.3 459.6 339.65 278.66 243.64 205.09 147.60 Growth (%) 37.79 35.32 21.89 14.37 38.95 EBITDA 146.2 116.03 83.6 63.01 68.62 40.93 32.54 Depreciation/ Amortization

48.6 26.58 14.7 14.18 12.87 14.89 7.29

EBIT (Operating Profit)

97.6 89.45 68.9 48.83 55.75 26.04 25.25

Margin (%) 15.41 19.46 20.29 17.52 22.88 12.70 17.11 Interests 34.31 28.82 24.26 25.34 41.52 10.20 8.13 PBT 63.28 60.63 44.64 23.49 14.23 15.84 17.12 Taxes 21.74 22.05 14.61 4.72 2.76 5.14 6.95

77

PAT 41.54 38.58 30.03 18.77 11.47 10.70 10.17 Margin (%) 6.56 8.39 8.84 6.74 4.71 5.22 6.89

In FY09, Welspun India posted a healthy top line growth of 37.79 per cent to Rs 633.3

crore, but its operating profit growth was stunted at 9.11 %. To its credit, Welspun

managed to reduce raw material costs as a percentage of sales on y-o-y basis to 34.17 per

cent in FY09.

Other expenditure for the year also increased by 72 per cent on higher power costs and

new capacities coming onstream. As a result, operating profit margin fell to 15.5 per cent.

Welspun is increasing its capacity and as a result, interest and depreciation are likely to

remain high going forward.

As seen from the financials over the years, Net sales have been increased substantially

and the margins have also been increased just left to this year.

Ratio Analysis:

Table No: 32

RATIOS Mar-09 Mar-08 Mar-07 Mar-06 Mar-05 Basic           EPS 5.23 5.98 6.10 3.57 1.89 CEPS 17.03 16.64 14.99 12.66 14.31 BV 75.37 64.93 50.60 44.79 41.52 EV 1307.05 1253.49 575.34 368.62 523.10 Profitability           ROE (%) 7.54 10.52 12.89 9.11 6.00 ROCE (%) 7.01 9.30 15.20 12.13 15.12 Valuation           P/E 13.52 20.69 13.74 9.79 37.90 P/BV 0.94 1.91 1.66 0.78 1.72 P/CEPS 4.15 7.43 5.59 2.76 5.00 EV/ Operating Income 13.39 14.01 8.35 7.55 9.38 EV/Sales 2.06 2.73 1.69 1.32 2.15 Leverage Ratio           Debt/Equity 2.53 2.62 1.95 1.95 1.93 Other           Int. coverage 2.84 3.10 2.84 1.93 1.34

78

Findings and Recommendations:

The company is 3-4 years ahead of its competitors in the home textile space and hence,

best poised to capitalize on the huge opportunity in this segment in the post-quota era.

Any strategic acquisitions of a retail outlet or brand will be a further positive for the

stock.

Welspun is one of the most expensive textile stocks, with a high debt-equity ratio of 2.5-

2.6 and low RoE of 7.5% which is not a good sign from the investor’s point of view.

P/E being the primary valuation tool as we can see that company’s stock is currently

trading at P/E of 13.52 which is well at an average of the industry. While looking at low

ROE in the industry it can be judged that company is not been able to use its resources

well.

With an expected earnings CAGR of 43% over FY09-10E being the highest in the sector,

global scale capacities in terry towels and a business model getting more dynamic with

the company’s entry into high value add segments, it seems valuations appreciating and

expect the stock to trade at premium as growth plays out.

The stock is not been rated upto the mark because of the risk perceived by investors due

to its frequent dilution.

79

7. Comparative Analysis:

Net Sales (Rs in Cr.)2642

1418.76 1592

1013.01884.49

1870.91889.16

1340.45

889.73633.33

0

500

1000

1500

2000

2500

3000

Fig. No: 18

PAT (Cr.)

176.9

110.19127.16

61.34 60.88 51.83

196.32

122.2999.78

41.54

0

50

100

150

200

250

Fig No: 19

80

P/E

31.11

8.38 9.61

37.44

14.61 12.677.83

17.31

9.413.52

05

10152025303540

Fig No: 20

Fig. No: 22

81

EPS

21.18

6.57 5.88

15.89

35.42

3.93

33.98

19.92

6.33 5.23

05

10152025303540

ROE (%)

8.01 12.34 9.09 13.2 17.337.76

20.4110.28

75.73

7.54

01020304050607080

EV / Operating Income

20.21

8.74 7.66

30.41

13.50 12.498.17

14.410.35

13.39

05

101520253035

Fig No: 23

Bibliography:

1. Financial Management – I M Pandye

2. www.texmin.nic.in

3. www.ibef.org

4. www.icicidirect.com

5. www.rbi.org.in

6. www.myiris.com

7. www.cline.capitaline.com

8. Business Standard Newspaper

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