Buy Sarla Performance; target Rs 230: Sunidhi Securities
Sunidhi Securities is bullish on Sarla Performance Fibers (SPFL) and has recommended buy rating on the stock with a target price of Rs 230 in its March 18, 2013 research report.
March 18, 2013 / 18:56 IST
Sunidhi Securities is bullish on Sarla Performance Fibers (SPFL) and has recommended buy rating on the stock with a target price of Rs 230 in its March 18, 2013 research report.
"Incorporated in 1993, SPFL (formerly Sarla Polyester) is a 100% EOU, manufacturing and exporting polyester and nylon textured, dyed yarns, covered yarns, high tenacity yarns and sewing thread. It is amongst the leading manufacturer-exporters from India, exporting products around the globe. SPFL was listed on the BSE in 1995. Sarla Overseas Holdings is a 100% wholly owned subsidiary of SPFL. The subsidiary company is holding 40% in Savitex, SA De CV, a joint venture based at Honduras; 60% in Sarla Europe LDA, and 45% in Sasrla Teksil In 2011, SarlaFlex Inc., a 100% subsidiary was formed in South Carolina, USA for the manufacturing and marketing of polyester POY used in textured yarn and sewing thread to the USA and neighbouring markets.""SPFL has an installed capacity of 11, 900 tpa annum for manufacturing yarns in Silvassa and 3, 200 tpa for a Dyeing unit at Vapi. Besides this, it has a capacity of over 1,200 tpa through joint venture and subsidiary companies overseas. SPFL is now to begin manufacturing Nylon 66, which is a high tenacity and lower shrinkage yarn product, a niche on its own, extremely specialized and margins are substantially higher. This product is very useful for end user industries like parachutes, shoes & lingerie. SPFL is the only company in India and among few in the world to manufacture Nylon 66. SPFL is also amongst the first manufacturers for covered yarn in India and has now transitioned into the largest manufacturing capacity for this product in India.""During Q3FY13, on standalone basis sales rose 19% to Rs 55.2 crore and net profit by 313% to Rs 6.2 crore. (YoY). OPM and NPM stood at 20.1% and 11.2% compared to 10.1% and 3.2% respectively in Q3FY12. Standalone EPS for Q3FY13 stands at Rs 8.9 Vs Rs 2.1 in Q3FY12. During 9MFY13, consolidated sales rose 29% to Rs 216.9 crore and net profit by 313% to Rs 6.2 crore. (YoY). OPM and NPM stood at 20.1% and 11.2% compared to 10.1% and 3.2% respectively in Q3FY12. Standalone EPS for Q3FY13 stands at Rs 8.9 Vs Rs 2.1 in Q3FY12. During FY12, consolidated net profit stood at Rs 18.9 cr. down 16.4% on 21% higher sales of Rs 233.6 cr. EPS stood at Rs 27. A dividend of 50% was paid. FY12 EBITDA was impacted by higher raw material costs largely as a result of a stronger USD INR exchange rate. During FY12, SPFL added balancing equipment in the dyeing and nylon sections. Investments in additional 2MW wind power were also made taking the total power generation capacity to 7.25 MW."
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Given the most of the products like threads are a small part of the clients cost structure, any increases in raw material prices for SPFL are more easily absorbed. Imports are 34.4% of total turnover, i.e. including trading sales (63% of total raw material cost). The 59% of SPFL’s revenues is in foreign and balance in local currency, deemed exports and sales in domestic tariff area. Consequently SPFL is considerably hedged from forex volatility. Focus on high margin specialty polyester & nylon yarns, catering to the full gamut of innerwear, narrow fabrics, hosiery and sportswear, global reach through international subsidiaries & JV’s enabling proximity to customers worldwide – targeting high end brands and multiple geographies, efficient operations, minimal overhead.""SPFL’s facilities in Turkey and Portugal as well as a revamped dye house in India will drive volume. Nike itself is estimated to invest ~$ 100 million per year in nylon 66. Like Nike, several leading brands across the space would be inclined to use the product. An increase in the proportion of nylon yarn in the total volume may boost gross spread. Two factors can be expected to enable SPFL return to its strong EBITDA margins. Firstly, SPFL has begun procuring a greater proportion of its raw materials i.e. chips, POY, etc from domestic suppliers at competitive prices. Secondly, as export contribution increases, susceptibility to exchange rates can be expected to decline. The benefits of these developments are already visible in the 9M FY13 financial performance. At the CMP of Rs 157, the share is trading at a P/E of 3.5x on FY13E and 2.7x on FY14E. We maintain BUY with an increased price target of Rs 230 (P/E of 4.0 on FY14E) in the long term," says Sunidhi Securities research report.Bodies Corporate holding more than 50% in Indian cos Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.To read the full report click on the attachment 
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