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Wednesday, December 9, 2009

Sutlej Textiles and Industries Ltd:Buy/sell/hold,growth prospects and recomendation,news and results,target price and analysis

Scripscan:Sutlej Textiles and Industries Ltd

Story:Sutlej Textiles and Industries manufactures synthetic staple-fibre yarns, manmade-fibre-blended yarn, cotton yarn & fabrics and apparels which include woven or worsted/synthetic staple yarn, fabric processing, home furnishings and garments. This KK Birla group company emerged from a restructuring exercise in which the textiles division of Sutlej Industries and Damanganga Processor were de-merged, in July 2005.Although the last year was tough for the industry, as the global slowdown crippled the demand overseas, there are indications of orders flowing in. Sutlej has installed 43,776 spindles at its two spinning units, considering the future demand for its products. In FY08-09, the company invested Rs138 crore for the expansion and plans to invest Rs50 crore over the next two years for modernisation and the other ongoing projects. While yarn is the company’s strength, given its large production capacity, its fabric division is struggling. This is clear from the September-quarter results. The yarn division contributed 91% of the total revenue. The company is in the process of improving its product mix. It is producing lycra-based fabrics which enjoy high demand in the Gulf. Its September quarter was among the best in the past three years, when sales jumped 31% and operating profit leapt 285%. Much of that profit goes towards paying the interest cost but also high depreciation. In FY08-09, it had debt of Rs856.07 crore and interest cost of Rs43.19 crore. If you add back the depreciation, cash accrual was over Rs56 compared to the market price of Rs87. Besides, its market-cap is just 0.1 and 0.83 times its sales and operating profit, respectively.A great buy at present levels.


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