Buy Sangam India; target of Rs 424: Ajcon Global

Ajcon Global's research report on Sangam India

Established in 1984, Sangam India Ltd. is the flagship company of Sangam Group a Rs. 4,000 crores + business conglomerate having diverse business interests across textiles, steel, infrastructure, power and energy sectors. Mr. RP Soni, Chairman & First Generation entrepreneur, leads the Group. Sangam ranks among the leading players in Indian textiles sector with presence in PV (polyester viscose), dyed yarn and fabrics. One of market leaders in PV dyed yarn with 25% share. Today, SIL is a leading manufacturer of PV yarn in India. The company is also present in the Indian synthetic blended fabric and denim segments with brands such as Sangam Suitings and Sangam Denim. Sangam also has garnered respectable market – share in denim segment within three years of commencement of production. Sangam was promoted as a fabric manufacturing unit, under the name of Arun Synthetics Pvt. Ltd, by Mr. R.P. Soni and Mr. S.N. Modani. The company took a strategic decision to backward integrate and forayed into spinning in 1995 by installing 17,280 spindles for manufacturing PV dyed yarn. Sangam’s manufacturing facilities are located in Bhilwara, Rajasthan. As of FY15, the company has a spinning capacity of 211,296 spindles and 3,128 rotors; weaving capacity of 437 looms; and processing capacity of 53 mn meters P.A.

Sangam being probably the only Company which has all the segments of textiles industry including seamless women which has value addition. With due consideration to factors like a) Company managed by very well qualified, experienced and dedicated professional management, b) a fully corporate governance compliant Company with full transparency, c) diversified product mix with market leadership in most of its products, d) foray into seamless female garments segment with its own brand of “Channel Nine” which will add tremendous value to the Company, e) impressive financial performance with strong cash flows, f) prudent debt management – debt/equity to improve to 0.99x by FY18E from current 1.33x in FY16 inspite of expansions for capacity additions, g) ROE set to improve, h) stock attractively trading at cheap valuations of 7x at estimated FY18 EPS, hence we recommend a “BUY”. We value the stock at Rs. 424 (by assigning a multiple of 12x (which is appropriate considering the strengths of the Company and its market leadership) at revised FY18E EPS of Rs. 35.4.