If you have been ignoring textile stocks so far, you have missed out on enormous gains. In my last piece, I pointed out how ace stock pickers like Ashish Kacholia, Dolly Khanna, Prof. Sanjay Bakshi, Porinju Veliyath etc are aggressively buying textile stocks without a care in the world because they are so confident that better days are ahead for textile stocks.
I also provided a chart of the YOY returns of textile stocks which shows that several of them have given three-digit returns in the last one year.
Then, I also profiled the advice of two leading experts on the outlook for textile stocks in the foreseeable future. Both experts have confidently predicted that we are in the midst of a multi-year bull run and that we must make hay while the sun is shining.
Manish Ostwal of Nirmal Bang has now issued an initiating coverage report on Sutlej Textiles & Industries Limited in which he points out that Sutlej has a lot of things going for it. It has huge capacity expansion underway which will drive growth over FY16 to FY18. Also, he expects that the margins will improve substantially in FY17 and FY18. He also points out that Sutlej has a strong balance sheet with healthy growth & return ratios, which will be a significant value differentiation in the textiles sector.
The best part is that Sutlej Textiles is quoting at a reasonable P/E of 7.9 ifm you look at the trailing EPS of FY15. If you look at the forward P/E for FY16 and FY17, the P/E is 6 and 5.3, which is quite reasonable in this day and age.
Manish Ostwal has summed up his recommendation in the following words:
“Valuation & Recommendation: Sutlej Textiles posted an adjusted PAT of Rs.116.1 crore on net sales of Rs.1878.2 crore in FY’15. We expect Sutlej Textiles to clock 25.9 per cent CAGR in net profit aided by 14.6 per cent CAGR in net sales and improvement in EBIDTA margins. Healthy net sales growth outlook, EBIDTA margin improvement, efficient working capital management and strong balance sheet are key value drivers for stock performance over the medium term. At Rs555, the stock trades 5.0x FY17 EV/ EBIDTA and 3.4x FY18 EV EBIDTA, which makes it an attractive valuation given the strong earnings growth outlook and healthy return ratio. We value the company at 4.5x EV/EBITDA for FY’18E to arrive at a price target of Rs.796 over the next 12-15 months, providing an upside of 43 per cent from the present level.”
Sutlej Textiles has also furnished a “Q1 FY2016 Results Presentation” dated 30.07.2015 which paints a rosy picture of the company’s prospects.
The presentation points out that while the revenue has grown at a CAGR of 10% over the past five years, the PAT and EPS have both grown at a whopping 34% CAGR in the same period.
It is also pointed out that Sutlej is “India’s largest Spun Dyed Yarn manufacturer and leading player in Value added / Specialty yarns” and that it supplies to marquee clients like Page Industries, Arvind, Siyarams, Arrow, Grasim etc.
A specific mention is made of the fact that Sutlej has been delivering “consistent and robust returns” and that ROCE and ROE stood at 23% and 21% respectively in FY2015. It is also stated that the company has a consistent track record of paying dividend since incorporation and that the dividend payout ratio was 17% in FY15.
It is pointed out that the company has a strong balance sheet and that this is brought out by the fact that the credit rating agencies improved the company’s rating.
A detailed explanation of the business outlook for the foreseeable future is also given.
At the end, it must be admitted that Nirmal Bang’s initiating coverage report as well as the Company’s investors’ presentation make for interesting reading. It does look like the Company is off to a good start and that it will see glory days soon.
Now, what we have to watch is whether Sutlej Textiles will be able to match the performance of its illustrious peers like Welspun Syntex, Indo Count, KPR, Nandan Denim, RSWM etc and deliver multibagger returns to its shareholders!
Nice to see more textile items are coming in consideration. But as a small retail investor i am confused with my bet. I have shortlisted RSWM, Welspun and now Sutlej. Donno where to go?
Hey yo. Looking at all fundamentals, financials and management, your best choices are only two. Nandan Denim and Sutlej.
Why cant U inform the reader about the purchase by these people within 1/3 days, so that general investor can also be benifitted
Update. There is a serious concern to management mentality. They have 42% of their 18% holding in Sutlej pledged with the bank. Most likely to prop up their sugar mills which are losing money faster then you can say hi. Also, there is a non current investment in Oudh sugar mills which is reckless, and has no merit. 50 crore should be pulled out immediately. Only once they redeem these faults, then it is worth an investment.