Buy Sangam India Ltd. - Fairwealth Securities

A Textile Conglomerate, the Bhilwara (Rajasthan) based Sangam Group of Companies (SGC) is today a name synonymous with excellence in textiles. It is a "Complete Textile House" that is diversified into spinning, weaving, knitting, flock fabric and processing. It is a prominent and leading manufacturer, exporter and supplier of world-class Suitings, Denim fabric, Flock Fabrics and Cotton and synthetic yarns from India

Based in textile city, Bhilwara, it has one of the largest unit in India to produce dyed yarn using state-of-the-art machinery. The company exports its premium product range to Turkey, Belgium, Spain , MiddleEast, and various other countries.

Key Investment Rationale:

Favourable Shift Towards PV-Yarn as the Cotton prices rise:-

Increased cotton yarn prices, coupled with evolving dressing sense in the country is the growth driver for the PV-Yarn. During the last 5-6 years, the PV-yarn as a segment grew by 8-9% as against the 5-6% growth wittnesed in Textile sector as a whole.

Market Leader- Drives Pricing Power:

Sangam India Ltd, is the market leader with over 25% share in PV-Yarn, thereby enjoying the bargaining power. The Polyester prices have risen by around 25%, viscose, prices have increased by around 30% in the past one year. The company has been able to raise yarn prices by 30-35%.

Improved Product Mix will lead to margins expansion:

Earlier, Sangam was mainly concentrated on coarser counts (realisation are lower than finer counts). Its per kg. realisation of yarn was Rs 130/kg. for FY09 and Rs 142/kg. for FY10. This is expected to improve to Rs 155/kg. in FY11 as the Company plans to focus more on value added products

During the quarter ended 30th June, 2010, the net sales of the company reported an increment of 30.35% on y-o-y basis to Rs 255.1cr as against Rs 195.7cr during the corresponding quarter last year. On sequential basis the company's performance was modest, and the net sales saw an expansion of 11.21% from Rs 229.38cr.

On operating front, the EBIDTA registered a growth of 28.02% to Rs 38.42cr from Rs 30.01cr as against the corresponding period last year, while on sequential basis EBIDTA registered a marginal growth of 3.98% from Rs 36.95cr. However, the company has been able to maintain its margins over 15% flat on both y-o-y basis and sequential basis, largely on account of higher realization from PV-yarn segment.

The net profit of the company saw an increment of 246.15% YoY to Rs 7.65cr as against Rs 2.21cr during the corresponding quarter, while on Q-o-Q basis the net profit fell marginally by 1.8% from Rs 7.79cr. The better-than-expected bottom-line performance of the company was mainly contributed by higher Top line of the company and stable interest cost.

At the current price of 48, the stock is trading at 7.20 and 5.12x times of our estimated FY11E & FY12E earnings. We thus recommend a 'BUY' with a Price target of Rs 68.

Source : Equity Bulls

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