VTM ( Virudhunagar Textile Mills)

1.In first half of this year profit of the company is around profit of previous full year. Looking to half year performance we may expect that for full year profit will be around Rs.16 crores, almost double of previous year.

2.As per data available since 2004 it is continues profit making and dividend paying company. Due to higher profit, this year company will increase dividend payment.

3.VTML is a Cash Rich company. As on 31.03.2015, it has invested cash surplus of Rs.33.27 crores in various debt mutual funds, which market value were Rs.34.49 crores as on 31.03.2015. As on 30.09.2015 its investment in debt mutual funds reached to Rs.47.29 crores (Rs.12.00 per share), which is 37.34% of its net worth and it will be further increase in year end.

4. During 1994-95, VTML issued bonus shares in the ratio 5:1. Looking in view of a small capital of Rs.4.00 crores and cash surplus position of Rs.12.00 per share, it is a potential bonus candidate.

5.Promoter’s holding is 75% shows their great interest in the company. Promoters are credit worthy and they have not pledged any share.

6.The company has own two Wind Turbines, capacity of 2.1 MW each, established by Suzlon. Market value of these wind mill generators is Rs.25 crores assuming Rs.6.00 crores per MW. These wind mills have generated 5314729 Units electricity in FY 2014-15. It is one third of total unit electricity consumed by the company.

7.Working capital loan to the company is zero and it is virtually debt free. A small amount of finance cost paid to the banks. To make it more competitive in both International and Domestic markets, the Company is modernising its plant & machinery under TUFS at and taken a term loan of Rs.6.00 crores from SBI in FY 2014-15. The company has received TUFS subsidy of Rs.1.25 crores for this loan. Therefore, actual cost of this loan is very low.

8.The company has a large land bank. For further expansion it need not require to buy additional land. Cash surplus of Rs.47.29 crores is more than sufficient for further expansion without taking any loan for banks.

9.Market Cap of the company is Rs.96.00 crores. Looking in Cash surplus Rs.47.29 crores in books, Value of Wind Turbine of Rs.25.00 crores; present market value of the company’s textile business is only Rs.23.71 crores.

10.It is trading at very cheap price 33/- (Closing price of 24.01.2016) compare to company’s Cash surplus position, Reserves, Assets Value, Low Equity, Profits, Dividend yield andFuture potential.

 

Yes. It is a good company, headed by Mr.Kannan ( Thiagarajar Mills, Madurai). They produce high quality grey fabrics and export a significant portion. Lack of value addition(like dyeing, printing and stitching of bed linens) is a negative. The competition in grey fabrics market is increasing every day. More and more Airjet looms are installed in Andhra Pradesh, where the production cost is cheaper. Understand that a lot of new weaving machines are added in MP and Rajasthan also.

Secondly, VTM doesn't have its own spinning Mills, though their sister concerns are spinning mills. In Tamilnadu, when a Spinning Mill has its own weaving mill, they need not pay Sales Tax of 5%. I think, VTM has to pay 5% sales tax on their yarn purchase(including those from its sister concerns).

Yarn constituting more than 50% of the cost of grey fabrics, this 5% sales tax will result in a cut in their profits.

Don't expect Rupee depreciation to bring in more revenue, as Grey fabrics importers are too smart and never miss an opportunity to trim the price, whenever Rupee depreciates.

Though, it is a very very good company, am not sure how much the price can move on the upside in the absence of value addition. This company has been so good for at least 3 decades and I don't think, there is much scope for further improvement, volume addition being the only exception. I don't expect a fancy valuation for grey fabrics producer, when a KPR Mill with all its value addition could not.

My familiarity with this industry might have brought some contempt in my assesment and hence my views may be biased.

 

Thank you for the industry inputs, Karthik. It's been on my watchlist for over a month and explains the lower valuation.

Have you looked at Siyaram Silk Mills?

 

but karthikeyan considering the low valuation fair price for the stock is around 85

 

I will look into it.

 

In general Textile stocks, baring a few exceptions like Kitex who had gone for value addition and branding never enjoyed a good valuation in my opinion. Though VTM is an exceptional performer for the last 3 decades, price was hovering around Rs.20 mostly.

That being said, I began stock trading just 3 months ago and I am a mug in matters of valuation. I just want to bring a few issues to your attention so that you can have a thorough brainstorming abt this stock. There is a very strong chance that I may be wrong.