SHARETIPSINFO >>Research Reports >> BIRLA COTSYN (India) Ltd (21-01-2010)

COMPANY OVERVIEW:
Birla Cotsyn started its operation in the year 1932 as flagship company of Yash Birla Group. The company has good sales network in India and abroad for Grey and Dyed Solid Griddles, fancy, industrial knitting and sewing ring spun yarns in various blends and count range from NE 8s to 60s. 
Birla Cotsyn also has 50:50 JV with Sunflag group. JV will have integrated textile complex at the cost of Rs 315 crores. It will manufacture open end, rotor based cotton yarn with installed capacity of 1728 rotors. It will have 114 looms to weave fabric.

PRODUCT MIX:

INDUSTRY OUTLOOK:
Indian textile industry is expected to grow at CAGR OF 14% to become $115 billon by 2012. The ever increasing domestic demand fuelled by increasing middle class and their disposable income will help textile industry in achieving the estimated target growth. Good demand from US and Europe as global economy is coming out of recession is very positive for Indian textile export.
Government initiative for providing loan at concessional rate in order to upgrade machinery to textile sector is also good for the industry.

INVESTMENT RATIONAL:
Company will benefit from the orders from US and Europe. As these economies are coming out of woods.
There could be some package expected in the coming budget for textile sector. This will trigger rally on the counter.
Company `s stellar performance in Q2FY10 in terms of profit and sales and is also expected to show the same in Q3FY10.
Company’s forward integration from synthetic yarn manufacturer to cotton yarn, weaving, processing and garment segment helps it to increase the profit margin.
Company’s also expanding its presence into retail outlets.

CONCERN:
Company is exposed to the exchange rate fluctuation. Any big upswing in rupee against dollar will be a dent on profitability.

SHAREHOLDING PATTERN:

FINANCIAL:

Key Highlights:
Total Income grew by 134% in FY09 to Rs 199.6 crore.
PBDITA moved up by 130.5% in FY09 to Rs 13.42 crore.
PAT grew by 27.7% in FY09 to Rs 2.12 crore.

RATIOS:

Key Highlights:
EPS grew by 27.7% in last 2 years.
PBDITA margin remained almost flat at 6.72.
NPM declined from 1.95% to 1.06%.The decline is mainly attributed to the increase in interest outgo. Company in order to finance the expansion resorted to debt.
Interest cover too declined from 5.97 to 1.66.

COMPARISION OF Q2FY2010 WITH Q2FY2009:

Key Highlights:
Total Income increased by 119% in Q2FY10 to Rs 71.57 crore on YoY basis.
PBDITA increased by 381% in Q2FY10 to Rs 6.65 crore on YoY basis.
PAT moved up by 565% to Rs 1.53 crore on YoY basis.

VALUATION &OUTLOOK:
We expect the company to close the financial year FY 10 with EPS of Rs 0.65. Company stock is trading at 2.3 X to the FY10E EPS. While the industry average PE stands at 14X. Stock is trading at considerable discount. We value the company at 12X the fair value of the stock comes at Rs 7.80.
Stock seems to be undervalued at current market price. There is considerable upside from this level.

CONCLUSION:
Investors with 6-8 months of investment horizon could take position on the counter. The risk reward ratio is favorable at this level.

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