Banswara Syntex

The Banswara Syntex stock is a good buy on dips given the company's wide product portfolio and its focus to grow the niche textile products

 

A 33-year-old integrated textile manufacturer, Banswara Syntex has benefited the most during the recent run in stocks of some of the integrated textile manufacturers. The company experienced a jump in its operating margins in the current financial year due to improved exports while rising prices of yarns have also supported the margins in the latest quarter.

COMPANY:

Banswara Syntex is a Rajasthan-based blended yarn and fabric manufacturer. The company manufactures all types of blended yarns, namely polyester, viscose, woolen and acrylic other than cotton. It also manufactures fabrics and garments on made to order basis and supplies them to all top retail brands. Banswara has entered into a 50% joint venture with French textile company Carreman for a weaving plant of 60 looms. The company has started production of technical textiles while it also manufactures Lycra branded fabrics especially for women fashion clothing, women office clothing and school uniforms. 

   The fabric business is currently the larger contributor to the total revenue, with more than 60% of sales coming from the segment. The rest 40% to the topline is contributed by the yarn business, a major chunk of which comes from the sale of polyester yarn. The company exports its products to nearly 50 countries and exports accounted for nearly 60% of revenue in the current quarter. Banswara has coal-based and furnace oil thermal power-based power plant with a capacity of 18 MW (mega watt) and 9 MW respectively, both of which are used for captive consumption of power. The company has planned for an additional 15/18 MW thermal-based power plant, which is expected to commence operation at the end of '10.

FINANCIALS:

In the last five financial years, the company's topline grew at a compounded annual growth rate (CAGR) of 21% while net profit increased with a CAGR of 40%. The revenue experienced a big push in FY10 thanks to a substantial demand recovery in the March '09 quarter. On a trailing year basis, while the improvement in profit margins continued during the latest four quarters, the interest cover has improved in the last two quarters. This is in line with a decline in the interest cost (from 5.9% to 5.1% of net sales) in the latest two quarters on a trailing year basis. While a high debt to equity ratio (4:1 for FY10) is a concern, the growth in debt is accompanied by a similar expansion in the gross block. The company has a capex plan of Rs 110 for the next financial year, about one-third of which is to be resourced through internal accruals, and the rest through term loans. The funds are to be used for construction of another power plant and modernisation of the current production facilities.

GROWTH DRIVERS:

The company expects to further bank on its fabric line of business by focussing on niche market products like Lycra and technical textiles. In recent months, it has received an initial order of 57,000 metres of three-layer waterproof breathable fabrics from ministry of defense and a third repeat order of 20,000 metres of technical fabric from a US-based customer. Banswara has planned for an additional 15/18 MW thermal based power plant which is expected to commence operation at the end of 2010. The power generated by this plant would primarily be used for internal consumption and surplus for sale.

VALUATIONS:

The stock has demonstrated an outstanding performance not only against the Sensex but also among all textile companies. Against a 75% gain in the Sensex, the market-cap of Banswara experienced a six-fold jump. At the current market price, the PE ratio stands at 4.5, lower than its average for the last five years and closer to the average of the last two years. The stock is a good buy on dips given the company's focus to promote its niche textile products.