SHARETIPSINFO >>Research Reports >>SEL MANUFACTURING COMPANY LTD (20-11-2009)

COMPANY OVERVIEW:
Company was established in the year 1969. Company manufactures ready –made garments for domestic and international market. It exports yarn, fabrics and garments to major markets in Russia and Middle East.
Company has four state of art garment manufacturing facilities one knitting unit and 50000 spindles cotton yarn spinning.
Company has significant advantage over other players as it is backwardly integrated to manufacture it own yarn before knitting. This not only saves cost but also helps company in maintain strict quality.

PRODUCT MIX:

INVESTMENT RATIONAL:
Company stock is trading at 2.3X to FY09 EPS. This is much below the industry average of 5.
Company has shown a consistent growth in profitability and Income even at the time of recession. Profit grew at CAGR of 55% and Income at CAGR OF 76%.
The Q2FY10 Income up by 132% on YoY and Q2FY10 Net Profit surged by 125% on YoY.
Reviving world economy will lead to increase in export.
Increasing disposable income will also help the company increase its top line in the domestic market.
The huge government expenditure in the rural economy will help the company indirectly by having more revenue from rural India.
During the recession textile companies benefitted as they got latest second hand machinery at 70% cheaper rate.
Package by government for textile will also benefit the textile industry as a whole.
Ban on cotton export will help in containing the raw material cost for textile companies.

SHAREHOLDING PATTERN:

FINANCIAL:

Key Highlights:
CAGR IN TOTAL INCOME IS 76%
CAGR IN PBDITA IS 75%
CAGR IN PAT IS 54.6%

RATIOS:

Key Highlights:
EPS has grown at CAGR of 55% over the 3 years period from Rs 12 to Rs 29.
PBDITA margin remained almost flat at 20%.
NPM margin remaining stable at 11.5% till FY08 fell sharply in FY09 to 8.7%.Major reason for the fall in margin is increase in depreciation charges and interest.
Interest cover is comfortable at 2.8. It was near 5 till FY08. This shows company interest outgo has increased.

COMPARISION OF Q2FY2010 WITH Q2FY2009:

Key Highlights:
Total Income for Q2FY10 has grown by 132% to Rs 280 crore on YoY basis.
PBDITA for Q2FY10 has grown by 65% to Rs 45.25 crore on YoY basis.
Net Profit for Q2FY10 has grown by 125% to Rs 20.18 crore on YoY basis.

VALUATION &OUTLOOK:

At CMP of Rs 70, stock is trading at 2.3X to FY09 earning while the industry average is 5X.So on conservative basis even if we price the stock at 4X the fair value is Rs112.
Outlook of the company and sector as a whole remains promising. We expect the company to outperform the market. Textile sectors outlook remains positive on back of good global economic recovery and increase in domestic demand.

CONCLUSION:

Investor with time horizon of 6-8 months should take exposure on the counter. The risk reward ratio remains favorable for the counter.

HAPPY INVESTING…….

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