SHARETIPSINFO >>Research Reports >>SUMEET INDUSTRIES LTD (12-03-2010)

COMPANY OVERVIEW:
Sumeet Industries Limited was established in the year 1989. The group has substantial fabric processing in Surat. It has 11 fabric processing units with a capacity to process one million meters fabrics per day. Company is present in the entire Polyester fabrics value chain by integrating both backward and forward. The integration helps the company in realizing better margin and offering the product at very competitive price.
The company at present exports Polyesters & Menthol products to South Africa, Bangladesh, Egypt, Saudi Arabia, China, Singapore and many other countries.
Company also has the captive power plant. This helps in checking the energy cost for the company.

Power: Company has recently commissioned the 6 MW gas based power plant thereby enhancing the capacity of captive power generation by 8.5 MW.
Packaging Materials: Company has installed a complete plant to manufacture packaging material required for yarn unit.
Transport: Company has its own fleet of transport vehicles, which delivers the material on time.

PRODUCT MIX:

INDUSTRY OUTLOOK:
Government in order to increase investments in textile industry has provided Textile Up-gradation Fund Scheme (TUFS) till 31st March, 2012. The scheme for Integrated Textile Park was launched in 2005 to provide the industry world class infrastructure facilities.
The polyester witnessed double digit demand in the past few years and is expected to continue for next 3-4 years. Demand for polyester grew at 18% annually.
Also as the developed world is out of recession, the demand for fabrics is expected to grow. Domestically higher disposable income, urbanization and people becoming more fashion conscious will help the industry grow further.

INVESTMENT RATIONAL:
Company is emerging as the integrated player. It has value added product mix from yarn to clothing. It is present in entire Polyester fabrics value chain through backward and forward integration.
Management is in the process of setting Continuous Poly condensation plant along with capacity expansion. After the process is complete its top line will increase by 4 times and bottom line is expected to grow by 8 times.
With global market coming out of recession the demand is expected to be robust. The realization is also expected to increase.
Company EPS in FY11 is expected to be Rs 4 a fourfold increase in profitability.

RISK:
Company faces from existing players and potential entrants in the Indian textile industries.
Price of raw materials move in tandem with crude oil price as polyester is derived from crude oil. So any spike in crude oil price will adversely affect the company margin.
Any negative government policy change could hamper the growth of the industry and affect the company.

SHAREHOLDING PATTERN:

FINANCIAL:

Key Highlights:
CAGR IN TOTAL INCOME IS 23.8%.
CAGR IN PBDITA IS 27.25%.
CAGR IN PAT IS 64%.

RATIOS:

Key Highlights:
EPS has grown at CAGR of 23.8%.
PBDITA margin has improved from 8.4% in FY06 to 9.15% in FY09.
NPM also increased from 1.02% in FY06 to 2.5% in FY09.
Interest cover has improved from 1.6 to 2.3.

COMPARISION OF Q2FY2010 WITH Q2FY2009:

Key Highlights:
Total Income has grown by 132.5% to Rs 118.9 crore in Q3FY10 on YoY basis.
PBDITA has grown by 151.2% to Rs 7.46 crore in Q3FY10 on YoY basis.
PAT has grown by 267% to Rs 3.12 crore in Q3FY10 on YoY basis.

VALUATION &OUTLOOK:
At current market price of Rs 22, it is trading at 5.5X to FY11E EPS. Even if we value the company at lower PE multiple of 9, the fair price will be Rs 36.
Outlook remains stable and we expect company stock to outperform the broader market.

CONCLUSION:
Investor with investment time horizon of 6-8 month could take position on the counter. The risk reward ratio is very favorable. The downside risk on the counter remains limited.

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