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Sunday, September 13, 2009

Aarvee Denims & Exports Ltd and Ramsarup Industries Ltd:Future growth prospects and outlook(buy/hold or sell?)

1)Scripscan:Aarvee Denims & Exports Ltd

Story:Aarvee Denims and Exports Ltd., is one of the oldest and largest manufacturers of Denim in the country. The company is engaged in manufacturing and distribution of denim fabric under the brand name of "Amtex". It is largely self-sufficient on two of the major factors of its production i.e. Yarn (spinning unit) & Power (captive power plants). With initiatives like capacity expansion, improving operating efficiencies, debt swap, forward integration towards garment manufacturing and diversification in home textiles, Aarvee is all set to catapult itself in the next league.The promoters of Aarvee have strong roots in trading and distribution of textiles. The company started as a trading company and thus enjoys very well laid out distribution network in the domestic market. The company has a strong distribution channel in Northern and Western regions which constitute 55-60% of the domestic denim market.The domestic demand for denim is expected to grow at 25% p.a. as compared to the global growth rate of 5-6% p.a. as per capita consumption of denim in India is very low compared to the world average. The manufacturing capacities in US are turning unviable and these production capacities are likely to shift to the Asian countries.The company has undertaken considerable measures to become one of the lowest cost producers of denim in India. It has gone for captive power plants and debt swapping there by lowering the costs to the minimum. Thus Aarvee enjoys higher margins as compared to its peers and is expected to do so in the future as well.We believe Aarvee has done right things at the right time by expanding its capacities to be able to take advantage of the opportunistic dynamics of the denim industry. With its focus on lowering cost of production, strong roots in distribution and enhancing its presence in the textile value chain, Aarvee would be able to achieve both volumes as well as value growth.In good textile time aarve can certainly turn out to be a scrip to watch out for.

2)Scripscan:Ramsarup Industries Ltd

Story:Ramsarup Industries Ltd (RIL) is the flagship company of the Ramsarup Group. It is the second largest producer of steel wires in the country but largest in the category of earth wires used in power transmission and distribution. Apart from earth wires, it produces various other kinds of wires used primarily in power and infrastructure sectors. The company also produces the largest range (8 mm to 40 mm in diameter) of TMT bars and rods in the country.The company is a proxy play on power and infrastructure growth in the country with 80% revenues coming from these industries and its intensifying focus on them. It has a marquee clientele in both power and infrastructure space. Within the power sector, RIL is one of the few companies having registration with PGCIL and almost all SEBs and in APDRP projects.It enjoys a wallet share of 70-75% in PGCIL earth wire supplies.RIL, besides increasing capacity of steel wires and TMT mill, would soon start manufacturing structurals (used in making transmission towers) and laying transmission lines. Further, the incremental capacity in the wires segment would cater to high-end applications. Capacity expansions/generations coupled with strong demand from consuming industries and company's strong competitive position is anticipated to lead to robust sales volume CAGR of 25% over FY09-12.Though the company is essentially a converter, its operating efficiency and strong earnings CAGR call for a valuation re-rating.Ramsarup offlate has moved up a lot,buy at sub 60 levels to reap the maximium benefit.

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