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Sunday, November 15, 2009

Rajapalayam Mills Ltd:Future growth prospects and outlook,buy/hold/sell,analysis and recomendation

Scripscan:Rajapalayam Mills Ltd

Story:It is incredible that while the textile producers seek sops from the GOI to survive, there remain isolated pockets down South which outperform in adversity. Look at Rajapalayam Mils as a sparkling starting point.

-Rajapalayam Mills is a spinning mill producing yarn of different counts.

-The corporate has undertaken a technology upgradation programme under which old machines have been replaced with modern ones.

-Rajapalayam supplies high quality yarn to Mitsubishi amongst other large global players.

-As a unique diversification Rajapalayam has moved into tissue culture for ornamental and orchard plants. However, this segment has not begun contributing as yet even though the core business remains strong.

-For FY09 Rajapalayam reported Revenues of Rs 235 crore with after tax profits of Rs 6.5 crore

-The corporate has an Equity of Rs 3.5 crore and free reserves of Rs 115 crore, which translates into a book value of Rs 336 per share.

-The Equity ownership is concenterated with the Promoter PR Ramasubhramaneya Raja and associates directly owning 49 per cent of the stock. The public interest is small.

-The corporate has gone in for tax saving measures by putting up Windmills, but the bigger story is the land bank with the company.

-It is whispered that Rajapalayam Mills too could become a land bank play making the stock attractive even at current levels.

-What should enthuse investors is that against fixed investment of Rs 400 crore(It holds 3.3cr shares of madras cements and 79 lakh shares of ramco industries), Rajapalyam Mills fetches a market cap of Rs 144 crore and given the small equity and a building land bank story this stock could do well in the medium term.

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