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Saturday, May 30, 2009

Birla Cotsyn (India) Ltd:-Outlook/growth prospects/buy or sell?

Scripscan:Birla Cotsyn (India) Ltd
Traded in:Nse-bse

Story:Birla Cotsyn was a cotton ginning and trading company. With the acquisition of a spinning company in ''06, it got into manufacturing synthetic yarn. It has a capacity of 18,304 spindles located in Khamgaon in the Vidarbha region of Maharashtra. It plans to set up a 36,000-spindle cotton yarn unit along with 1,728 rotors and 114 looms to manufacture grey fabric. It also plans to set up a unit to manufacture finished cloth with 50,000 metres per day capacity. The expansion project enjoys special tax sops from the state government under the Mega Project scheme. It also attracts lower interest rates under the Technology Upgradation Fund scheme of the ministry of textiles. In addition to the above expansion plans, Birla Cotsyn eyes manufacturing and retailing of garments under its own brand. It plans to launch 20 retail stores in various parts of the country by FY10. This will enable it to emerge as a fully integrated player with a presence across the entire textile value chain. The company generates over one-fourth of its revenues from exports to Yemen and Turkey. This is expected to rise to 50%, post-expansion and forward integration.Due to the acquisition of Khamgaon Syntex in August ''06, Birla Cotsyn''s financials are not comparable with earlier periods. The acquisition has helped it to boost its topline and bottomline significantly in the past two years.The company''s margins were eroded at operating and net levels in FY07. High prices of cotton and adverse rupee-dollar movement hit profitability.The company expects to improve its profits and profitability, post-expansion. The proposed expansion is likely to double its product realisation.However, there are several challenges. It is a late entrant in garment manufacturing and retailing.Establishing a successful brand in this space in a highly competitive scenario appears challenging.However, it needs to be noted that Birla Cotsyn has a sound and experienced management to back its foray into the new ventures.In view of all this, Investors may invest in the stock in view of exiting at higher levels.

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