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Feb 08, 2013, 01.46 PM IST | Source: Moneycontrol.com

Sangam India: Low demand affects revenue growth says CRISIL

CRISIL Research has come out with its report on Sangam (India). The research firm have revised their earnings estimates, rolled forward the discounting year to FY15 and revised the fair value to Rs 73 from Rs 58 per share.

CRISIL Research has come out with its report on Sangam (India) . The research firm have revised their earnings estimates, rolled forward the discounting year to FY15 and revised the fair value to Rs 73 from Rs 58 per share.

Sangam (India) Ltd's (Sangam's) Q3FY13 results were below CRISIL Research's expectations. Revenues decreased by 14.6% q-o-q (up 6.2% y-o-y) to Rs 3,295 mn due to 7.1% q-o-q dip in textile revenues and absence of revenues from the toll collection business. Sangam held collection rights from National Highway Authority of India (NHAI) to collect toll from toll centers in Rajasthan, Gujarat and JNPT, Mumbai. The toll collection contracts ended in Q2FY13.

EBITDA margin contracted by 20 bps q-o-q (up 554 bps y-o-y) to 15.6% due to lower contribution from the high-margin denim segment; the decline was partially offset by the absence of the low-margin toll collection business. Interest cost increased by 7% q-o-q due to higher utilisation of working capital limits compared to the previous quarter. Adjusted PAT declined by 39% q-o-q to Rs 111 mn and PAT margin contracted by 133 bps q-o-q to 3.4%. We maintain the fundamental grade of 3/5.

Textile revenues down 7.1% q-o-q due to lower demand
Overall revenues of the textile business declined by 7.1% q-o-q to Rs 3,280 mn. The denim and fabric segments registered a decline of 26.4% and 5.9%, respectively, due to lower demand. The yarn segment (63% of Q3FY13 textile revenues) reported marginal growth of 0.8% q-o-q. Change in product mix towards finer count of yarn impacted volume growth, and stable PSF (polyester staple fibre - major raw material for PV yarn) prices, coupled with declining cotton yarn prices, affected realisation growth of yarn.

Lower contribution from denim segment weighed on textile EBIT
The value-added denim segment's revenue contribution decreased from 25% in Q2FY13 to 20% in Q3FY13 due to lower demand. Raw material cost for denim is only 41% of the total value, which translates into higher margins for this segment. With the decrease in denim's contribution to overall textile revenues, raw material cost as a percentage of textile revenues increased by 142 bps q-o-q to 58.7%. Consequently, textile EBIT margin declined to 9.3% in Q3FY13 from 11.1% in Q2FY13.

Fair value revised to Rs 73
We continue to use the sum-of-the-parts method to value Sangam. We have used the discounted cash flow (DCF) method to value the textile business and Sangam's 26.02% stake in Keti Sangam Infrastructure Ltd. We have revised our earnings estimates, rolled forward the discounting year to FY15 and revised the fair value to Rs 73 from Rs 58 per share. At the current market price of Rs 53, the valuation grade is 5/5.

Disclaimer: This report (Report) has been commissioned by the Company/Investor/Exchange and prepared by CRISIL. The report is based on data publicly available or from sources considered reliable by CRISIL (Data). However, CRISIL does not guarantee the accuracy, adequacy or completeness of the Data / Report and is not responsible for any errors or omissions or for the results obtained from the use of Data / Report. Opinions expressed herein are CRISIL's opinions as on the date of this Report.  The Data / Report are subject to change without any prior notice. Nothing in this Report constitutes investment, legal, accounting or tax advice or any solicitation, whatsoever. The Report is not a recommendation to buy / sell or hold any securities of the Company. CRISIL especially states that it has no financial liability, whatsoever, to the subscribers / users of this Report. This Report is for the personal information of the authorized recipient only. This Report should not be reproduced or redistributed or communicated directly or indirectly in any form to any other person or published or copied in whole or in part especially outside India, for any purpose.

© CRISIL Limited . All Rights Reserved. Published under permission from CRISIL"

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