Suryajyoti Spinning Mills to set-up specialty bottom weight fabric facility in technical collaboration with Italian company

Initiative to be headed by Italian collaborator, leveraging existing relationships to open supply arrangements with several major global fashion labels.

Contribution from new initiatives and expansions projected to deliver significant profit and earnings growth over next four years.

Suryajyoti Spinning Mills Limited, a Leading manufacturer of a wide range of yarns, today announced that it will set up India’s first specialty bottom weight fabric weaving, dyeing and finishing plant in technical collaboration with an Italian company. The Italian company has significant experience in this industry and has been servicing the requirements of many major global fashion labels over several years.

The company will look to consolidate existing relationships and establish a robust infrastructure to deliver Italian quality at Indian prices. The Italian company has been selling to such discerning high-fashion Italian and global brands as Dolce & Gabbana, Marlboro Classics, Versace, Giorgio Armani, Diesel and Reply, among others.

The bottom weight fabric initiative will be structured as a strategic business unit.

Commenting on the alliance, Mr. A,K. Agarwal, Executive Director of Suryajyoti Spinning Mills Limited, said:

"The specialty bottom weight fabric initiative is expected to transition our business to a global level and our association with an Italian enterprise will provide high fashion / low cost options to some of the best known designer brands in the world, Our collaborators have maintained deep relationships with several leading European fashion houses over many years. This, and other yarn expansion and modernization programs already underway, will add substantial value to all our stakeholders over the next few years."

Production facility near Hyderabad:

Suryajyoti will invest about Rs. 105 crores in this project, to be located near Hyderabad, which at optimum capacity will manufacture nine million meters and process 20 million meters of bottom weight fabrics. Suryajyoti will focus on the production of fabric with specialty finishing, a niche market catering to the requirements of leading global fashion houses. In the third full year of production, specialty finished bottom weight fabric, which commands significant premium in the international market, is expected to comprise more than half the output and two-thirds of the revenue from this venture.

Project financing and operational details

The project will be largely financed by long-term debt (to the tune of about two- thirds of the total investment of Rs. 105 crores) with the remaining requirement to be met through a combination of internal accruals and equity capital. Production is expected to start in the second half of FY 2008 and the project is likely to be profitable from Day 1. The facility is expected to reach optimal production Levels by FY 2010, at which point Suryajyoti’s bottom weight fabric business will contribute revenues of more than Rs.200 crores with EBITDA margin of more than 25%.

Transitioning to the next level of operations

The bottom weight fabric initiative is a part of Suryajyoti’s extensive expansion and modernization program, being implemented in a phased manner. The company has already added 7,056 spindles at its Makthal unit to manufacture value-added multifold and combed yarns, for which there is increasing demand. This has increased Suryajyoti’s yarn manufacturing capacity to 62,416 spindles at present. As a part of this project, the company has also completed the modernization of existing yarn manufacturing infrastructure that is now contributing to improved quality of production and higher realizations.

Further, Suryajyoti is adding 25,200 spindles geared towards the production of higher counts of cotton at a new facility located at Rajapur Village in the Mahabubnagar District of Andhra Pradesh. This facility is expected to be operational in the third quarter of FY 2007.

Following the completion of both these facilities, Suryajyoti’s yarn manufacturing capacity will increased to 87,616 spindles, including synthetic yarn, and cotton yarn of medium/coarse counts and higher counts, The company will invest an aggregate amount of Rs.76 crores in yarn capacity expansion over Makthal and Rajapur, of which about 75% has been financed through low cost longterm debt available to the company under Technology Upgradatlon Fund Scheme (TUFs).

The yarn expansion and modernization initiative is expected to start contributing optimally by FY 2008. Revenues of about Rs. 70 crore and EBITDA margin of about 19% is expected in FY 2008.

Strong growth trajectory

All of Suryajyoti’s expansion initiatives are expected to have a very attractive payback period and result in improvement in margins/returns on an overall basis.

Based on a stable operating environment scenario, the company expects its aggregate revenues to increase to more than Rs. 250 crore in FY 2008, the year in which the yarn facilities ramp up production, from Rs. 141 crore in FY 2006. In FY 2008, EBITDA margin is expected to reach 17-19%, By FY 2010, once the bottom weight fabric facility also ramps up to capacity, revenues are expected to reach about Rs. 425 crores with overall EBITDA margin of 25%.

Source : Equity Bulls

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